February 13, 2025

Why in news ?
India and majority members of OECD and G20 Inclusive Framework on Base Erosion & Profit Shifting adopted a high-level statement that outlines a consensus solution in a bid to address tax challenges that are arising from digitalisation of economy.

About:

  • This proposed solution comprises of two components:
  1. First pillar is about reallocation of additional profit share to market jurisdictions and
  2. Second pillar comprises of minimum tax and subject to tax rules.
  • However, some significant issues like share of profit allocation and scope of subject to tax rules are open and need to be addressed.
  • Technical details of proposal will be worked out soon and a consensus agreement will come by October 2021.
  • How will it impact India?

Pillar I of OECD and G20 two-pillar solutions of addressing tax challenge seeks to show a special purpose nexus rule and profit allocation formula to reallocate a part of super normal profits of largest and most profitable and multinational groups in market countries like India and China. The outcome will have quantitative benefits on India as it will ensure that India gets its fair share of corporate tax on earnings from market it provides to MNEs.

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