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Finance minister Nirmala Sitharaman said the G20 nations’ endorsement of a proposed new global tax framework on Wednesday will help deal with the challenges arising from the digitization of the economy.

The Group of 20 nations, comprising India, China, the European Union (EU), the UK, the US and others, endorsed the proposed global tax framework backed by 136 nations last Friday. G20 nations also called for quick framing of model rules for implementing a multilateral legal instrument or treaty in 2023.

The deal envisages a global minimum corporate tax rate, reallocation of profits of tech giants to countries such as India, where they have large consumers, and withdrawal of unilateral digital services tax imposed by countries like India and some of the EU nations.

In a statement on Thursday, Sitharaman said the G20 grouping endorsed the final agreement set out in an 8 October statement and the implementation plan released by the OECD/G20 initiative to address the tax challenges arising from the digitalization of the economy.

The finance ministry said Sitharaman appreciated the OECD’s role in supporting the agreement as set out in the statement on a two-pillar solution. The two-pillar solution refers to a global minimum tax to discourage the race among nations to lower tax rates and reallocate taxation rights over tech giants to benefit countries like India, where they have consumers.

“This agreement helps address tax challenges arising from digitalization of the economy and in dealing with (tax) base erosion and profit shifting issues," the ministry said.

India, however, did not say anything on withdrawing its equalization levy—the tax on digital services. Many experts have raised doubts whether gains to India from the new global profit allocation rules may measure up to the tax revenue India collects at present from the equalization levy.

The US has warned of retaliation against unilateral levies imposed by countries, given that American firms dominate the global tech industry. According to a January United States Trade Representative statement, of the 119 companies it identified as likely liable under India’s 2% digital services tax on e-commerce supplies by non-resident businesses, 86, or 72%, were US companies.

G20 nations said in its communique that it endorsed the final political agreement as set out in the 8 October framework brought out by the OECD/G20 inclusive framework on (tax) base erosion and profit shifting. “This agreement will establish a more stable and fairer international tax system," the G20 communique said, while emphasizing on swift development of model rules and treaties to ensure the new rules will come into effect at the global level in 2023.

 

 

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