India will evaluate the benefit of joining the Organisation for Economic Cooperation and Development’s (OECD) global tax deal as the US deciding to withdraw from such a global pact has made it “impractical to implement”, Finance Secretary Tuhin Kanta Pandey said on Tuesday, February 4.
US President Donald Trump on January 20 in a Presidential memorandum had said that the “Global Tax Deal have no force or effect within the United States”, thus nullifying the progress made so far by the OECD to bring 140 countries on the same platform to levy a minimum 15 percent tax on profits of multinational corporates.
To a question on what would be India’s stand on the global tax pact, Pandey said the US exit has added a lot of uncertainty and if the United States is not joining it then such a pact doesn’t work out.
Pandey, in a post-Budget interaction of Assocham, said the tax deal is a multilateral approach where the US is much integrally needed.
“If the US has now said that it is walking out of it, then obviously it would be impractical to implement the whole thing. We had some reservations already recorded, but we had broadly gone along with the consensus with some reservations.
“We have not enacted any legislative measures. Some countries have already… If the US withdraws from this process, then I think we will have to evaluate what benefit it will have,” Pandey told reporters here.
In 2021, nearly 140 countries signed the OECD’s global tax deal.
The two-pillar solution aimed to address the “race to the bottom” approach of global tax competition and discourage cross-border tax avoidance by firms. Pillar 1 aims to reallocate the residual profits of large multinationals from their home countries to jurisdictions where they generate revenue, and Pillar 2 establishes a 15 percent global minimum corporate tax.
Around 50 jurisdictions have already adopted or made significant strides towards adoption of GloBE rules. These jurisdictions will have to now undertake a course correction to adjust to the new realities.
OECD’s pillar 2 initiative sets a minimum tax rate of 15 percent for every country that is signatory to it. There is a concern that the US domestic tax rules might conflict with this new global minimum tax.
One of the concerns that the US has is that some of their companies might end up paying tax twice on the same income. Another issue is that the new rules might change how taxes are calculated, potentially increasing the burden on US companies with operations in other countries.
