MNC Digital Tax: India to strive for higher share of MNC digital tax

India will work with like-minded countries to ensure developing countries like itself get a fair share in the proposed tax on multinational digital companies under a global deal being worked out, a top government official told ET.

“We would speak to like-minded countries… We should get a better deal,” the official said.

India on Friday joined 130 countries in the G20-OECD inclusive framework to reform international tax rules to create a new global tax regime on which there is a broad agreement, but details are yet to be worked out.

Framework of the proposed tax – which would apply to multinational enterprises with global sales of more than ₹20 billion and over 10% profitability – and its implementation is expected to be worked out by the Organisation for Economic Cooperation and Development (OECD) by October.

The final negotiated multilateral instrument will be developed and opened for signature in 2022 for implementation from 2023.

India will have to withdraw the equalisation levy, or the so-called Google Tax, introduced in 2016, when the global tax deal is implemented.

New Delhi wants to ensure that its tax earnings from the new regime are more than what it gets from the equalisation levy.

India provides a high user base to multiple global ecommerce platforms and wants to ensure that it gets a fair share in revenues, and that the formula agreed upon is balanced and has a wider coverage than currently envisaged.

India has backed the OECD-Base Erosion Profit Shifting talks under which this agreement is being thrashed out since its initiation and is keen on the deal.

Experts said New Delhi will now have to focus its attention on the formula. “It is likely that India would review the finer details in respect of allocation of profits and taxation rights vis-à-vis the tax foregone towards equalisation levy and share its perspective when the formulae is discussed and agreed upon,” said Vikas Vasal, national managing partner – tax, at Grant Thornton Bharat LLP.

The proposed framework has two pillars. Pillar 1 seeks to ensure a fairer distribution of profits and taxing rights among countries with respect to the largest multinational enterprises, including digital companies.

Pillar 2 seeks to put a floor on competition over corporate income tax by introducing a global minimum corporate tax rate.

As per the proposal, large multinational enterprises’ profit in excess of 10% of revenue will be allocated to market jurisdictions with nexus using a revenue-based allocation. The exact portion of profits to be reallocated has not been finalised and negotiations on these are expected to gather steam in the coming weeks.

Extractive and regulated financial services have obtained a carve-out from this proposal.