While there is growing consensus among countries on implementing the global tax norms on digital firms such as Amazon and Facebook, some issues are yet to be resolved. There could be a complete change in how these firms are taxed if these norms are eventually implemented.
The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Inclusive Framework) has released the text of a new multilateral convention that updates the international tax framework to co-ordinate a reallocation of taxing rights to market jurisdictions, improve tax certainty, and remove digital service taxes.
The publication of the convention moves the international community a step closer towards finalisation of the Two-Pillar Solution to address the tax challenges arising from the digitalisation and globalisation of the economy,” the OECD said in a statement on October 11.
Pillar One that would apply to the largest multinational companies and redistributes a portion of their profits to the countries where they operate in to ensure that they pay tax in these jurisdictions with taxing rights on about $ 200 billion in profits expected to be reallocated to the market jurisdictions every year. Pillar Two aims to levy a global minimum corporate tax that countries may implement into their domestic law which will ensure large multinational enterprises (MNEs) are subject to an effective tax rate of 15 per cent on their profits in every jurisdiction where they operate.
The OECD has published the text of the multilateral convention for Amount A under Pillar One that applies only to MNEs with global revenue over €20 billion and total profits greater than 10 per cent of their global revenue. It was presented to G20 finance ministers at their recent meeting in Morrocco.
“The successful implementation of Pillar One and Pillar Two would mark a paradigm shift in the international tax arena post which the OECD can start focusing on other critical aspects relevant for the effectiveness of the Base Erosion and Profit Shifting framework,” noted Divakar Vijayasarathy, Founder and CEO, DVS Advisors
Rony Antony, Partner and Leader–Corporate Tax, Direct Tax, BDO India, also noted that the newly published MLC is a step to align taxation of large MNE with the jurisdictions they operate in. “The new draft seeks to rationalise the taxation of digital economy since the existing systems create inequities between source of income and jurisdictions where such income is taxed,” he said.
However, there remain several areas where more clarity is required.
“The 140 Inclusive Framework countries have agreed to the text of the MLC for release to the public, but there is not yet a formal opportunity to sign,” said a note by PwC, adding that there is no further guidance on Amount B or transfer pricing for routine distribution and marketing transactions, which the Inclusive Framework (IF) continues to work on, post consultation, to provide final guidance by the early part of 2024.
Source : Business today