Putting forward the right for jurisdictions to “tax back” where other jurisdictions have not exercised their primary taxing rights, the Organisation for Economic Co-operation and Development (OECD) has floated a consultation paper for Global Anti-Base Erosion (GloBE) proposal under Pillar Two, proposing a minimum rate of tax for all internationally operating businesses.
This implies that not only tech companies, but also most multinationals, which have intangible assets as profit drivers, would be covered under the tax ambit.
Comments for the tax proposals under Pillar II, which won’t be limited only to digital companies, have been invited till December 2, following which a public consultation meeting would be held on December 9.
“A minimum tax rate on all income reduces the incentive for taxpayers to engage in profit shifting and establishes a floor for tax competition among jurisdictions. In doing so, the GloBE proposal is intended to address the remaining BEPS challenges linked to the digitalisation of the economy, but it goes even further and addresses these challenges more broadly…depending on its design, the GloBE proposal may shield developing countries from pressure to offer inefficient tax incentives.
The GloBE proposal is based on the premise that, in the absence of a co-ordinated and multilateral solution, there is a risk of uncoordinated, unilateral action, both to attract more tax base and to protect existing tax base, with adverse consequences for all jurisdictions,” the OECD paper said.
The public consultation document on Pillar II of BEPS 2.0 project, that broadly contains four main proposals for global minimum taxation is in addition to proposals under Pillar I, which were circulated a few weeks ago and were related to the allocation of taxing rights between jurisdictions considering various proposals for new profit allocation.
“The Programme of Work for Pillar Two specifies that the GloBE proposal will operate as a top-up to an agreed fixed rate. The determination of the actual rate of tax to be applied under the GloBE proposal will be discussed once other key design elements of the GloBE proposal are fully developed,” the OECD paper said.
Rajendra Nayak, tax partner and national leader-international tax services, EY India, said the GloBE proposals could lead to significant changes to the international tax rules under which multinational businesses currently operate.
“The scope of the GloBE proposal is not limited to highly digitalised businesses. The proposals would, through changes to domestic law and tax treaties, provide jurisdictions with a right to ‘tax back’ where other jurisdictions have not exercised their primary taxing rights or the payment is otherwise subject to low levels of taxation.”
The proposal includes income inclusion rule that would tax the income of a foreign branch or a controlled entity if that income was subject to tax at an effective rate that is below a minimum rate. Rakesh Nangia, chairman, Nangia
Andersen Consulting said taxing digitalised economy is the priority for nations worldwide.