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NEW DELHI : Although India is a huge market for digital companies, it is not certain if India will be a big gainer from the global tax deal announced last week by 136 nations that seeks to reallocate taxation rights to such markets, EY said in an analysis. 

EY said that India has already introduced an equalization levy and the concept of significant economic presence under domestic tax laws to effectively tax digital economy players. As part of the global tax deal, these unilateral measures have to be withdrawn.  

EY said that the reallocation of taxation rights over tech giants under the proposed global tax deal is applicable to very large multinational enterprise groups--around top 100 enterprises.  The scope and quantum of revenue gain to India is uncertain, specifically as compared to domestic equalisation levy which significantly contributes to Indian tax revenues, EY said.  

Further, large Indian headquartered MNEs will also need to comply with pillar one rules and India will need to share its taxing right with other countries," EY said in an analysis shared on Tuesday.   

Considering tax authorities from multiple jurisdictions shall be involved in coming to final profit allocation numbers, the determination of actual profits that can be allocated to India may be a time-consuming process, EY said. 

As part of the proposed tax deal, global redistribution of $125 billion of profits every year from around 100 of the world’s largest and most profitable companies is envisaged. However, individual nations including India will have to withdraw the taxes they have imposed unilaterally on digital services rendered by offshore businesses. 

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 initially. 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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