OECD Pillar 2-GloBE rules can help India thwart tax avoidance by MNCs, say experts

India stands to gain significant advantages if it incorporates OECD Pillar 2-GloBE rules into its domestic tax legislation to tackle profit shifting and base erosion concerns stemming from subsidiaries operating in jurisdictions with tax rates below 15% that may not adopt the Qualified Domestic Minimum Top-up Tax (QDMTT).

The central government is reportedly considering incorporating OECD Pillar 2-GloBE rules into India's domestic law as part of the upcoming full Budget presentation in July.

The Pillar 2-GloBE (Global Anti-Base Erosion) Rules, developed by the OECD, are aimed at ensuring that multinational enterprises (MNEs) maintain a minimum Effective Tax Rate (ETR) of 15% across all jurisdictions where they operate. This framework seeks to prevent MNEs from shifting profits to low-tax jurisdictions, thereby curbing tax avoidance practices.

The gains

By setting a global minimum tax rate, India can deter MNEs from artificially shifting profits to subsidiaries in jurisdictions with lower tax rates. This helps in ensuring that taxable profits are appropriately reported and taxed where economic activities occur.

The GloBE rules can help prevent erosion of India's tax base by multinational corporations that exploit loopholes in international tax laws. By establishing a minimum tax rate, India can safeguard its tax revenues and maintain a fair and equitable tax system.

Adopting GloBE rules promotes tax fairness by ensuring that all businesses, including multinational corporations, contribute their fair share of taxes based on their global income. This helps in reducing disparities and creating a level playing field for domestic and foreign enterprises.

Implementation of these rules can lead to increased tax revenue for India, as MNEs would be less incentivized to engage in aggressive tax planning strategies aimed at minimizing tax liabilities.

International Tax Cooperation: Aligning with OECD standards on Pillar 2-GloBE enhances India's standing in international tax matters and fosters greater cooperation among jurisdictions to combat tax avoidance and evasion.

Creating a robust tax framework that adheres to global standards can enhance investor confidence in India's business environment. It signals a commitment to transparency, fair taxation, and adherence to international norms.

By incorporating GloBE rules into its domestic tax legislation, India can bolster its efforts to curb tax avoidance practices and ensure that multinational enterprises contribute their fair share to the country's tax revenues. This proactive approach aligns with global initiatives to create a more equitable and transparent international tax system, benefiting both India's fiscal health and its broader economic objectives.