Explore G20 Taxation, European Union’s efforts against tax avoidance, and the impact of BEPS in 2023. Understand the latest global tax initiatives, including the OECD/G20 Inclusive Framework on BEPS, and how multinational enterprises are subject to a 15% effective minimum tax rate. Stay informed about the Pillar Two GloBE Rules, Safe Harbours, Penalty Relief, GloBE Information Return, and Tax Certainty. Discover the implications for large corporations and the role of each jurisdiction in this global tax revolution. Read expert insights on the challenges and opportunities for nations, including India, as they participate in this historic taxation moment.
One recollects with intellectual gratitude to European Union, which consists of –countries who have cooperated among themselves in various areas and particularly, their Herculean task of fixing up of tax avoidance by some of the biggest corporations by using tax havens and using as too many strategies to avoid payment of regular income tax to countries who alone contributed the development of tax as a revenue earning stream to be followed every year by almost 165 plus nations today. As a CPA from USA, every day I thank EU which has now forced BEL 17 a cooperative agreement among all nations to impose stringent tax measures on all big corporations to pay some minimum tax in their areas of operation and do not indulge in tax havens excuses as a business strategy.
Let us learn the basic tenets of EU directives, instructions or friendly advice on direct taxation, indirect taxation, value added tax and taxation of interest and royalty payments made between associated companies.
Ready reference of the websites of EU are given at the end.
Taxation:
Direct taxation
Establishing a clear area of operation in direct taxation as the sole responsibility of member states like rate of taxation, various deductions, tax credits and availability of marriage as a social instrument to get tax benefits etc. Some harmonized standards for company and personal taxation have however been established.
Indirect taxation, popularly known as value added tax (VAT) has a coordinated and harmonized law for it.
The obvious reason is enabled to have similar treatment to all countries under EU to under indirect taxation for movement of goods and services at all places.
The latest transfer pricing guidelines under BEPS, the international agreement on taxation among 136 countries and other developments have overtaken the already developed guidelines of EU.
Let us learn the latest developments under BEPS.
Let us revert to EU website which details the latest achievements under the international agreements on taxation.
The performance of India has been highlighted at the end.
The details of the communication are not for light hearted one but imposes heavy responsibility of understanding the international standards, types of organizations, and the jurisdictional authorities etc. Let me explain in simple terms as much as I can.
The OECD/G20 Inclusive Framework on BEPS released in December 2022 helps with technical guidance to assist governments to ensure multinational enterprises (MNE) are subject to 15% effective minimum tax rate.
I include an authoritative detail directly from the web site for initiation of discussion.
“The Agreed Administrative Guidance for the Pillar Two GloBE Rules will ensure coordinated outcomes and greater certainty for businesses as they move to apply the global minimum corporate tax rules from the beginning of 2024. Together with the December 2022 publication of the Safe Harbours and Penalty Relief document and public consultations on the GloBE Information Return and Tax Certainty, today’s release finalises the Implementation Framework as set out in the October 2021 Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy.”
What do we understand exactly from the above para.
1. The Agreed Administrative Guidance for the Pillar Two GloBE Rules have to be understood.
2. Safe Harbours and Penalty Reliefdocument needs detailed explanation.
3. What is the GloBE Information Returnand Tax Certainty?
4. Yes, experts can send their valuable suggestions on the above publication.
Let me directly delve into the above publications which will set the standard proforma for reporting by MNE and also the necessity for local tax administrations to deeply study and avail the required compulsory tax collections for the said state.
Public consultation document Pillar Two – GloBE Information Return 20 December 2022 – 3 February 2023.
Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global AntiBase Erosion Model Rules (Pillar Two) Inclusive Framework on BEPS was issued on 1February 2023 for public understanding.
Small narrations from above publication.
111 paged documentations contain the following salient features.
Quoted web site for guidance.
https://www.oecd.org/tax/beps/agreed-administrative-guidance-for-the-pillar-two-globe-rules.pdf
The booklet opens up with brief executive summary, followed by Chapter 1. Scope, Chapter 2. Income and taxes, Chapter 3. Application of GloBE rules to insurance companies and Chapter 4. Transition, and Chapter 5. Qualified Domestic Minimum Top-up Taxes.
Executive summary
One can proudly reproduce multipronged approach of the nations to solve the identified problems of ensuring MNE to pay minimum tax at places of operation and that too to nations who get neither being too big or too small and both of them rule based and continue to maintain international tax atmosphere rather than help divertion to- wards irregular tax havens.
Reproduced below some of the basic tenets from the said booklet.
- “In October 2021 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Inclusive Framework) agreed a two-pillar solution to reform the international tax framework in response to the challenges of digitalisation of the economy.
- As part of the October Statement, Inclusive Framework members agreed to a coordinated system of Global anti-Base Erosion (GloBE) rules that are designed to ensure large multinational enterprises pay a minimum level of tax on the income arising in each jurisdiction where they operate.
- In the October Statement, it was agreed that the Tax Challenges Arising from Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two): and the Tax Challenges Arising from the Digitalisation of the Economy – Commentary to the Global Anti-Base Erosion Model Rules (Pillar Two), First Edition: Inclusive Framework on BEPS (the “Commentary”) (OECD, 2022[2])) would have the status of a common approach.”
- For those who are serious to know the details of the progress made can read the whole report verbatim since huge business opportunities will emerge for those brave ones who are willing to undertake the huge task of compilation of big statements based on huge consultancy works which would definitely invite legal challenges since those accustomed to easy diversion of business by simple means would hate to follow the civilized behavior of the world.
- Let us also consider the following epoch- making documentation prepared for undertaking the huge tasks of GLloBE rules.
- Public Consultation Document – GloBE Information Return
- This 67-page document was put on public domain for expert comments from stake holders.
- Though the last date was 3 February 2023, one can send serious views/observations for information purposes. History making taxation moments have hardly shaken the world earlier.
- Any MNE is supposed to prepare the following data points document for assessing the tax liability.
- What are the data points?
- It has the heading of various points titled 1, 2…etc.: 1. General information, 2. Corporate structure, (180 plus rows of information) 3. ETR computation and top-up tax computation, (200 plus rows of information covering all types of jurisdictional tax operations, computations on a widest canvas possible) 4. Top-up tax allocation and attribution (15 rows of information).
- How does one interpret or understand the requirements? Annexure A-2 Explanatory guidance gives 200 plus guidance points.
Discussion
Will the entity prepare all types of information for various associates on a global scale and share them among all jurisdictional tax operations?
Let me explain.
Will Unilever Ltd, the global MNE prepare for all 190 plus countries where it operates and share among all nations details of its operations?
Can the information prepared be circulated among the global levels and if so, what about the security of the data and avoidance of misuse? Some nations may misuse the voluminous and valuable data.
All big corporations/large tax jurisdictions will read, understand the preparation of data, and are expected to contribute their views/observations/suggestions to make this global initiative a viable and profitable venture of the global tax jurisdictions.
It is possible only those interested to know the information may get the same from other countries provided proper arrangements have been made among the nations and necessary agreements signed.
India has met all the parameters set for joining the above initiatives, signed the agreements, and is in a position to enjoy the benefits of above international tax revolution of 166 nations, unheard of in the near future.
All matters will be discussed and an effective mechanism will have to be arrived at since giant nations like USA, UK, EU or newly emerging giants like India, China, South eastern giants like South Korea, Vietnam, Indonesia, Malaysia or the whole of neglected African nations who buy and keep the economy operating with their huge purchasing/selling power will have to wake up and start collecting the requisite tax proportions from non-paying international giant corporations who have specialized tax talents to avoid paying any taxation.
Imagine the most creative nations like USA or India, with maximum patents will sleep over and miss this golden opportunity to collect the due taxes from giants like Microsoft, Google or any of the technical companies with huge world turn over?
Opportunities for income generation
Name any professional like a lawyer, Chartered accountant, Certified public accountant, Management accountants/consultants/company secretaries or high tech/AI creators/valuers who will like to sleep over this once in a life time tax initiatives of the nations to attack the evils of diversion of funds from legal jurisdictions, total avoidance of tax liabilities but utilization of the best framework provided by civilized nations which have so far avoided global melt down of economy or emergence of dark economies as witnessed by all tax paying nations in the world wars.
Popularly notorious Swiss banks have been forced to join global initiatives, share information of numbered accounts of its depositors and gain global recognition so that its world-famous financial acumen may be utilized by the world economy.
Nearly 115 tax jurisdictions have started exchanging tax information among themselves due to initiatives of G 20 and OECD nations.
Conclusion
Let us remind ourselves that India was once considered as a sleeping elephant of the world economy and our GDP was notoriously known as Hindu GDP to wake up our conscience. We got soft power of high-tech units which have shifted their total operations of back offices, R&D centers or manufacturing operations involving high tech computers to India and it’s reported that nearly 50% of R&D of world giant car giants like Mercedes, Rolls Royce, BMW, Tatas etc. have shifted their creative operations to India and Indian taxation experts will have to manage their global operations sitting in Chennai, NCR region or Bangalore, Mumbai etc.
Required tax payments must pass through India but our tax administrators have to wake up to the global tax initiatives and actively contribute its global growth. Technology will play a major role and human capital may only assist it.
With the fastest GDP growth among all nations, the best young talents and inclusion growth, India has the full potential to monitor and contribute global distribution of total tax collection from all tax jurisdictions of the world. We can’t be the sleeping elephant of the world economy anymore. Apart from enriching all nations with its talents and past experience, it will gladly fulfill its obligations and emerge as the number 1 economy of the world.
Reference
https://www.oecd.org/tax/beps/oecd-g20-inclusive-framework-on-beps-progress-report-september-2021-september-2022.pdf
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional
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