2 min read.Updated: 09 Oct 2021, 01:28 PM ISTLivemint
To begin with, MNCs with turnover over 20 billion euros and profitability above 10% (profit before tax/revenue) will be covered under profit reallocation plan. Later, this will be lowered to 10 billion euros on successful implementation
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NEW DELHI: India is set to gain from global redistribution of $125 billion of profits every year from around 100 of the world’s largest and most profitable companies but New Delhi will have to withdraw its tax on digital services rendered by offshore businesses, as per the new global tax deal announced by 136 nations late on Friday.
Experts said India is balancing its interests as a key player in the global flow of goods, services and capital.
A statement issued by the Organisation for Economic Cooperation and Development (OECD) late on Friday said a multilateral deal will require all parties to remove all digital services taxes and other relevant similar measures with respect to all companies, and to commit not to introduce such measures in the future.
“No newly enacted digital services taxes or other relevant similar measures will be imposed on any company from 8 October 2021 and until the earlier of 31 December 2023 or the coming into force of the multilateral convention," said the OECD statement, adding that the modality for removing existing digital services taxes “will be appropriately coordinated."
It’s an important win for tax diplomacy and a seminal moment in international tax history, said Gouri Puri, partner at law firm Shardul Amarchand Mangaldas & Co. “While the fine print is awaited, India is balancing its interests both as an importer and an exporter of capital, goods and services."
Sandeep Jhunjhunwala, partner at Nangia Andersen, a consultancy, said as a significant move, the OECD has sought an immediate and upfront withdrawal of unilateral digital services tax and a commitment not to introduce such measures in the future.
India introduced a digital service tax called equalisation levy in 2016 on online advertisements, which has now been expanded to cover sale of goods and provision of services through e-platforms.
India, which has been actively involved in framing the deal, is yet to give a formal statement about Friday’s announcement. An email sent to the finance ministry on Saturday seeking comments for the story remained unanswered till the time of publishing.
To begin with, multinational companies with global turnover above 20 billion euros and profitability above 10% (i.e. profit before tax/revenue) will be covered under the profit reallocation plan. Later, this threshold will be lowered to 10 billion euros depending on successful implementation.
Profits will be allocated to a market jurisdiction when the in-scope multinational enterprise derives at least one million euros in revenue from that jurisdiction.
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