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economy | IST

Global corporate tax deal: 136 countries agree to OECD-G20 inclusive framework; experts weigh in

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According to Hitesh Gajaria of KPMG India, there could be an increase in investment flows into India once the global corporate tax reform is smoothly operational.

In what is being pegged as the biggest global corporate tax reform in over a century, 136 countries have agreed to the Organisation for Economic Co-operation and Development (OECD)-G20 inclusive framework on base erosion and profit shifting.
The deal, led by the OECD, is a bid to eliminate tax havens and generate over $150 billion in tax revenue from multinational companies. It includes a 15 percent minimum effective corporate tax rate applicable globally.
The deal, agreed upon after months of negotiations, will also include new rules where multinationals will need to declare profits and pay more in the countries where they operate.
The agreement also ensures that tech companies like Amazon, Google and others pay more taxes in countries where they have customers or users regardless of whether they have physical property in that market or not.
However, the deal includes a two-year ban on the imposition of any new taxes on such companies. India, China and Brazil agreed to the deal in the later stages of the negotiations. Sri Lanka, Pakistan, Nigeria and Kenya have not yet agreed to sign the deal.
Akhilesh Ranjan, Advisor on Tax Policy at PwC and Former Member of CBDT in an interview to CNBC-TV18’s Shereen Bhan said, “136 countries agreeing on anything is itself a major landmark. What it has achieved is, it has shown that multi-literalism is here to stay. The policies will now more and more be influenced by multilateral agreements. Secondly, the principles of this agreement move away from some established tax principles – they recognize the role of markets in generating profits, they recognize the fact that a multinational enterprise operating in different jurisdictions can carry on business without having any physical presence and must pay tax even in such jurisdictions.”
He added that the deal also recognises that the arm’s length principle of transfer pricing may not be adequate in allocating profits and that a more formal reapportionment may be required to be done. So these are all very significant changes or transformations that are coming into the tax world and the entire world would be impacted by them, he said.
Hitesh Gajaria, Senior Partner on Tax at KPMG India said, “If there is certainty in the tax world which these rules promise and litigation were to go down then India being one of the most promising markets will see an increase in investment flows of a multiple that we have not seen yet because some of the companies are still waiting on the sidelines, they are really scared about litigation taking place in India and in other places but if this agreement were to set the tone for how taxes are to be collected in a fair, efficient and transparent manner then we will see a lot more that India would gain once these rules are smoothly operational.”
Watch the video for more