India’s gains from global tax deal uncertain: EY

EY said India has already introduced the concept of uniform levy and significant economic presence under domestic tax laws to effectively tax the players of the digital economy. As part of a global tax deal, these unilateral measures will have to be rolled back.

EY said the redistribution of taxation rights on tech giants under the proposed global tax deal applies to very large multinational enterprise groups — roughly the top 100 enterprises. EY said its scope is restrictive as compared to the domestic equalization levy which contributes significantly to Indian tax revenue.

MNEs with large Indian headquarters will also need to follow a rule and India will need to share its tax authority with other countries,” EY said in an analysis shared on Tuesday.

EY said tax authorities of multiple jurisdictions would be involved in arriving at the final benefit allocation numbers, making the determination of the actual benefits that could be allocated to India a time-consuming process.

As part of the proposed tax deal, a global redistribution of $125 billion in profits is envisaged each year from nearly 100 of the world’s largest and most profitable companies. However, individual countries, including India, will have to unilaterally roll back the taxes imposed on digital services provided by offshore businesses.

MNCs with a global turnover of more than EUR 20 billion and a profitability of more than 10% (ie profit before tax/revenue) will be initially covered under the Profit Redistribution Scheme. Later, this limit will be reduced to 10 billion euros based on successful implementation.

Profits will be allocated to a market jurisdiction when the in-scope multinational enterprise generates at least one million Euros of revenue from that jurisdiction.