India joins 130 nations to back minimum corporate tax plan

India on Thursday joined the world's leading economies in endorsing a plan to force multinational companies to pay a global minimum corporate tax rate of at least 15 per cent and pledged to work for the deal's final approval in October this year.

This historic agreement--announced in Paris under the aegis of OECD--saw as many as 130 countries (out of the 139 involved in talks) back the plan (OECD/G20 Inclusive Framework Tax Deal), which has both elements of the agreement forged by the G7 in Cornwall in June. However, there are some special rules for certain sectors and companies added to it. Once implemented, it is expected to prevent globally operating companies from shifting to low tax regions to secure extended profits.

Countries that have agreed to the latest five-page plan collectively represent more than 90 per cent of the world's GDP.

The proposed solution --whose outline was endorsed on Thursday by the 130 countries, including India -- consists of two components --Pillar one, which is about reallocation of an additional share of profit to the market jurisdictions and Pillar Two consisting of minimum tax and subject to tax rules.

The final deal is expected to be reached by October when the G20 leaders meet in Rome. Implementation of the deal is expected to start in 2023.

India’s position

Meanwhile, an official release said some significant issues, including share of profit allocation and scope of subject to tax rules, remain open and need to be addressed. Further, the technical details of the proposal will be worked out in the coming months and a consensus agreement is expected by October, it added.

Principles underlying the solution vindicates India’s stand for a greater share of profit for the markets, consideration of demand side factors in profit allocation, the need to seriously address cross-border profit shifting and the need for subject to tax rule to stop treaty shopping, the release added.

India is in favour of a consensus solution that is simple to implement and simple to comply. At the same time, the solution should result in the allocation of meaningful and sustainable revenue to market jurisdictions, particularly for developing and emerging economies. India will continue to be constructively engaged for reaching consensus-based ready to implement a solution with pillar one and pillar two as a package by October and contribute positively to the advancement of the international tax plan, the release added.

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