India may take a step closer to global tax deal

The finance ministry is examining necessary legislative provisions to be included in the Income Tax Act to adopt the new framework, and guidance on this is expected in the Union Budget, said a person familiar with discussions in the government. However, detailed provisions may come later, depending on the outcome of the talks, said the person speaking on condition of anonymity.

The proposed new framework includes giving India taxation rights on offshore tech firms serving domestic clients and a ‘top-up’ tax on parents of companies in low-tax countries where the corporate tax rate is less than 15%. Is. India has agreed to roll back its similar levy or digital economy tax on offshore tech firms serving local clients once the new global tax deal comes into force.

Part of the model rules for the new regime related to the global minimum tax rate were issued by the Organization for Economic Co-operation and Development (OECD) in December, but the other part related to the reallocation of profits, a proposed framework for the larger digital economy. Firms which are of interest to New Delhi are awaited.

An email sent to the finance ministry on Saturday seeking comments did not elicit any response at the time of publication.

Experts said the global minimum tax framework would be implemented through countries’ domestic tax laws while the redistribution of profits to large digital economy firms would be done through a multilateral treaty. “Individual countries have about a year (ie 2022) to make the necessary legislative changes for implementation in 2023,” said Gauri Puri, partner at law firm Shardul Amarchand Mangaldas & Co. Experts and multinational firms are hoping for clarity on the transition. for the new system. “Taxpayers in general, and MNCs in particular, seek certainty and predictability in policy. Therefore, it is useful if the government can specify both an income inclusion rule to capture global income, which is a minimum of Under this is the sunset of tax and equalization levy, said Gokul Choudhary, Partner, Deloitte India.

Amit Maheshwari, tax partner at consulting firm AKM Global, said the model rules on global minimum tax and expected rules on profit reallocation by early 2022 set the stage for international tax reform. “There is a need to give details about the relevant positions on the practical application of this reform in the Budget to allow MNCs in India to evaluate their composition at the group level and plan related compliances in advance. This would require an amendment to the Indian Income Tax Act,” Maheshwari said.