NEW YORK: Representatives from 136 nations, including India have finalised a global tax deal which will ensure large digital players—Google, Facebook, Netflix, and Microsoft—pay a minimum tax rate of 15 per cent, wherever they operate, said the Organisation for Economic Cooperation and Development (OECD) on Friday. The tax deal to come into effect from 2023.
The OECD has also sought for an immediate withdrawal of unilateral digital services tax measures like equalization levy and a commitment to not introduce such measures in future, report agencies.
India introduced equalization levy for digital advertising services in 2016 at the rate of 6 per cent. Later in April 2020, it widened the scope to impose a 2 per cent tax on non-resident e-commerce players. India so far collected over 1,600 crore levy this fiscal which is almost doubled from last year.
Of 140 countries, 136 have agreed to two-pillar solution to address the tax implications arising from digitisation of economy in Paris on Friday. However four nations- Sri Lanka, Kenya, Nigeria and Pakistan had not joined the agreement.
This deal now will be delivered to the G20 Finance Ministers meeting in Washington DC on 13 October, then to the G20 Leaders Summit in Rome at the end of the month.
The global minimum tax agreement does not seek to eliminate tax competition, but puts multilaterally agreed limitations on it, and will see countries collect around USD 150 billion in new revenues annually, OECD highlighted.
“Today’s agreement will make our international tax arrangements fairer and work better,” said OECD Secretary-General Mathias Cormann. “This is a major victory for effective and balanced multilateralism. It is a far-reaching agreement which ensures our international tax system is fit for purpose in a digitalised and globalised world economy. We must now work swiftly and diligently to ensure the effective implementation of this major reform,” he added.
The proposed solution under the OECD’s Base Erosion and Profit Shifting consists of two components.
Pillar 1 of the proposal talks about taxing companies with 20 billion euro revenues and a profit margin above 10 per cent. These largely cover the top 100 companies. The threshold will be reviewed after seven years to cut it to 10 billion euros. This is much higher than the 1 billion euro revenue threshold pressed by developing countries, including India, to cover 5,000 global companies.
Under Pillar One, taxing rights on more than USD 125 billion of profit are expected to be reallocated to market jurisdictions each year.