Introduction
The OECD’s BEPS 2.0 initiative represents a pivotal overhaul of international taxation, aiming to address the challenges posed by the digital economy. Through its two-pillar approach, the initiative seeks to restore transparency and fairness in global tax systems. Pillar 1 reassigns a portion of the profits of the world’s largest and most profitable multinationals[1] from traditionally tax-favored jurisdictions to market countries where these firms engage with consumers, even if no physical presence exists. Pillar 2 introduces a global minimum tax of 15%, ensuring multinational enterprises pay a baseline tax rate in every jurisdiction they operate.[2]
For India, these reforms are particularly relevant. As a vast consumer market, India is a prime target for profit reallocation under Pillar 1. Simultaneously, India’s tax incentive regime which includes SEZ exemptions and concessional manufacturing and R&D tax rates may be undermined by the global minimum tax under Pillar 2.[3] Added to this are the challenges faced by Indian IT giants like Infosys, TCS, and Wipro, which operate globally and must adapt their compliance, reporting, and tax strategies to this evolving regime.[4]
This article examines the serious compliance challenges that Indian MNEs face and the significant administrative burden borne by Indian tax authorities under OECD Pillars 1 and 2. With the international tax landscape undergoing systemic change, it is imperative to understand and prepare for these emerging complexities.
Page Contents
OECD Pillar 1 & Pillar 2
The OECD/G20 Inclusive Framework on BEPS 2.0 embodies a two-pillar solution to modernise global tax rules and address challenges posed by the digital economy and base erosion[5]. Under Pillar 1, large MNEs with global revenue exceeding €20 billion and profit margins above 10 percent are subject to a new mechanism called Amount A, which reallocates 25 percent of profit above the 10 percent margin to market jurisdictions even where no physical presence exists[6]. In practice, this allocative formula allows countries where firms engage with end-users to claim taxing rights from a share of “residual profit,” thus rebalancing the tax nexus. [7]
India’s domestic response to digital multi-nationals has included the Equalisation Levy first on advertisement services (6 percent) and subsequently broadened (2 percent) to cover non-resident e-commerce revenue. India also introduced the Significant Economic Presence (SEP) rule to establish nexus based on revenue thresholds or user interactions[8]. These unilateral measures are being phased out in favour of Pillar 1 alignment. [9]
Pillar 2 introduces a global minimum tax of 15 percent, applicable to MNEs with revenues above approximately €750 million. [10] It aims to prevent profit shifting to low-tax jurisdictions by enabling countries to levy a “top-up” tax whenever entities fall below the 15 percent Effective Tax Rate (ETR). India’s Minimum Alternate Tax (MAT) and generous corporate incentives SEZ exemptions, R&D deductions, and 15 percent special rates face recalibration under this regime.[11]
India, as both a major consumer market and competitive investment destination, must balance the dismantling of its unilateral digital tax tools with the integration of OECC-compliant Pillar 1 and Pillar 2 frameworks.
Compliance Challenges for Indian MNES Under Pillar 1 (Infosys, TCS, Wipro)
Revenue attribution difficulties
Pillar 1’s Amount A requires in-scope groups to source revenue to each market jurisdiction using detailed category-based rules tied to where the end customer uses or consumes the service. [12]For Indian IT exporters, that turns into a data-mapping headache: outsourcing contracts often bundle application development, AMS, cloud migration, and help-desk under master agreements that span dozens of client locations. A typical Infosys or Wipro engagement for a U.S. headquartered client may deliver from India into multiple affiliates and ultimate user locations worldwide; under the sourcing rules, revenue must be split to the actual end-user markets, not simply the contracting or billing entity. [13]This demands granular customer-use telemetry, robust “sold-to/ship-to/use-in” fields, and contract-level tagging that many legacy ERPs don’t capture.
Complexity in apportioning Amount A
Amount A reallocates 25% of residual profit (profit above 10% of revenue) to markets where the MNE meets the quantitative nexus, applied as an overlay to domestic law and treaties.[14] Even for services firms with relatively light tangible footprints, segmentation is non-trivial. Groups must determine the covered group perimeter, identify any excluded segments, and then compute residual profit, apply the marketing & distribution profits safe harbour, and allocate by sourced revenues.³ For Indian IT groups, the mix of time-and-material vs. fixed-price work, on-prem vs. managed services, and platform/licensing lines (e.g., TCS BaNCS; Infosys Finacle) complicates categorization for sourcing and for potential segmenting. Draft and final materials emphasize that revenues that fit multiple categories must be sourced by their predominant character, a facts-and-circumstances test that invites interpretive divergence across tax authorities.[15]
Earlier blueprints framed scope with Automated Digital Services (ADS) and Consumer-Facing Businesses; [16]the final MLC now uses a bright-line €20 billion revenue and 10% profitability test (with sectoral exclusions), reducing the need to litigate whether classic outsourcing equals ADS. [17]Yet, operationally, the ADS taxonomy still echoes in revenue-sourcing practice (e.g., distinguishing pure software subscriptions from human-intensive managed services). Documentation that cleanly evidences the predominant character of hybrid tech deals (platform + managed service) will therefore be essential.
Double-taxation risks and dispute pipelines
Because Amount A overlays existing transfer-pricing and PE rules, mismatches between relieved and relieved-from jurisdictions can generate temporary double taxation especially where market countries and relieving residence countries disagree on sourcing or safe-harbour adjustments. The MLC builds a mandatory, binding tax-certainty framework for Amount A and “related issues,” promising that double taxation will ultimately be avoided, but only after a structured review and, if needed, a determination panel. [18] In practice, until all key jurisdictions ratify and staff these mechanisms, Indian MNEs may face multi-front MAP/APA interactions and litigation spikes. Ongoing geopolitical delays in some jurisdictions heighten the risk of parallel unilateral measures and controversy.[19]
Case-style implications for Indian IT champions
- TCS- With consolidated FY 2023–24 revenue of about US$29.1 billion, TCS plausibly clears Pillar 1’s revenue gate (profitability contingent). [20]TCS must therefore operationalize end-market sourcing across very large client programs (e.g., multi-country BFSI and retail deals), reconcile project-level margins to Amount A calculations, and build internal controls to evidence predominant-character classifications.
- Infosys- FY 2024–25 consolidated revenue ₹1,62,990 crore (≈US$19.6 billion) suggests close to but below the €20 billion bar, subject to FX/profitability.[21] If Infosys tips into scope (or if thresholds are reviewed down in future), the heaviest lift will be harmonizing Finacle/platform income vs. services for sourcing, and aligning geography-of-use evidence with client SLAs.
- Wipro- FY 2024–25 run-rate around US$10.4–10.8 billion indicates out-of-scope today on revenue[22]. Nonetheless, Wipro should treat Pillar 1 as readiness compliance: upgrade data capture, contract taxonomy, and interlock with Pillar 2 reporting systems to avoid later retrofits.
Compliance cost overhang
Even groups that ultimately sit out of Amount A face spillover costs: (i) redesigning chart-of-accounts and billing masters to store end-user location; (ii) building audit trails for predominant-character determinations; (iii) strengthening controversy management for new dispute channels; and (iv) engaging multi-jurisdictional advisors. For India’s deep bench of mid-tier IT exporters feeding into the value chains of in-scope clients, data-sharing and certification requests from those clients will cascade compliance burdens downstream.
Compliance Challenges for Indian MNES Under Pillar 2
Complex ETR Computations
Pillar 2’s GloBE rules require MNE groups to calculate their Effective Tax Rate (ETR) at the jurisdictional level that is, by dividing the taxed profits by accounting profits in each jurisdiction and comparing to the 15% floor.[23] In practice, this starts with financial accounting net income as the basis, but differences between book profits and taxable profits especially in India introduce significant reconciliation complexity[24]. For instance, India’s Ind-AS (largely aligned with IFRS) often treats provisions, deferred taxes, and development costs differently compared to local tax law. If an Indian constituent entity follows Ind-AS while the parent uses IFRS, substantial permanent differences may need adjustment to align with Pillar 2’s unified accounting standard approach.[25]
Impact on Indian Tax Incentives
India’s tax strategy hinges on incentives that drive investment, such as SEZ tax holidays, concessional 15% manufacturing rates, and R&D deductions. [26] Under Pillar 2, however, these incentives could drop an entity’s ETR well below 15%, triggering a top-up tax. [27]KPMG notes that incentives even if narrow in scope when combined, can deeply compress ETR and nullify their fiscal benefit if the top-up tax is collected in another jurisdiction[28]. India must, therefore, reassess such incentive schemes to retain their value in a post-Pillar 2 world. [29]
Double Taxation Possibility
A critical risk arises when foreign jurisdictions impose top-up tax under the Income Inclusion Rule (IIR) before India adjusts or enacts a Qualified Domestic Minimum Top-up Tax (QDMTT). Without a QDMTT, the top-up tax may be claimed by residence jurisdictions of the ultimate parent.¹ As Taxtmi highlights, this could render India’s generous incentives ineffective, potentially shifting tax revenue to wealthier countries. Indian MNE groups operating in jurisdictions that have already adopted Pillar 2 rules must now assess and provision for these external liabilities regardless of India’s domestic enactment status.
Increased Compliance Burden
Reporting requirements under Pillar 2 extend beyond ETR computation: companies must prepare country-by-country (CbC) reports, often under new safe-harbour provisions that allow simplified ETR testing but only for transitional periods. [30] Implementing these mandates demands overhauling internal systems, enhancing reconciliation processes, and investing in documentation capabilities.¹³ For Indian MNEs, many of which already grapple with INR-based accounting, transfer pricing analytics, and income-tax audits, this presents a substantial compliance escalation.
Case-Style Implications for Indian MNEs
- A manufacturing subsidiary operating in a SEZ benefits from no tax for the first five years and a concessional 15% thereafter. Under GloBE ETR calculation, however, deferred deductions and modified depreciation rules may pull the ETR below 15%, triggering a top-up tax, reducing the net effectiveness of the incentive.
- An Indian IT firm with R&D deductions and intellectual property income under Section 115BBF (10% rate) may generate low-taxed profits. Unless India enacts a QDMTT, the residence jurisdiction of its parent (say, Europe or the UAE) could impose the top-up tax.
- Even an Indian MNE that remains above 15% ETR due to blended high-tax operations may face incremental burdens: systems must still capture and differentiate incentive-derived income, comply with evolving disclosure norms, and monitor ETRs continuously.
Administrative Burden on Indian Tax Authorities
Capacity & expertise limitations- Administering Pillars 1 & 2 is not “business as usual.” Amount A under Pillar 1 overlays existing transfer-pricing, PE, and treaty rules with new nexus, revenue-sourcing, and tax-certainty processes including mandatory, binding multilateral determinations demanding specialist skills in consolidated accounting, data governance, and cross-border dispute management. Indian field formations already juggle GST, transfer pricing and legacy direct-tax litigation; adding Pillar 1 complexity without dedicated capacity risks bottlenecks. The scale of pendency is well-documented: lakhs of appeals remain in the system and multi-year timelines are common, underscoring capacity strain. Recent directions to fast-track and prune low-value appeals aim to ease this pressure, but implementation takes time[31].
Dispute-resolution challenges & sovereignty concerns- The Pillar 1 Multilateral Convention (MLC) establishes binding multilateral tax-certainty for Amount A and certain related issues an innovation intended to prevent double taxation but one that raises sovereignty sensitivities where determinations may effectively override domestic positions. India has signalled support for a consensus solution while voicing caution on ceding adjudicatory space, reflecting a broader debate over locus and control of global tax standard-setting. Practically, standing up these panels, staffing competent authorities, and coordinating with multiple jurisdictions will be resource-intensive.
Information exchange & data protection– Pillar 1 administration hinges on granular, jurisdiction-level revenue-sourcing data and timely exchange with counterparts; Pillar 2 adds GloBE information returns and safe-harbour tests. Meeting OECD confidentiality and information-security benchmarks requires statutory safeguards, information security management (ISM), and audited controls especially sensitive for India’s IT client data and personally identifiable information that may traverse borders. Upgrading secure gateways, logs, and audit trails is a non-negotiable compliance cost for the administration.
Revenue concerns during transition– India’s Equalisation Levy (EL) has been a meaningful, administratively simple instrument. Under the 2021 transitional understanding with the United States, India committed to remove its DST/EL once Pillar 1 takes effect a step that could create a short-term revenue dip until Amount A reallocations are realized and stabilized. Policymakers must also watch Pillar 2’s effect on India’s incentive-led strategy (SEZ/tax holidays, concessional rates): where these depress ETR below 15%, top-up taxes may be collected abroad unless India operates a robust Qualified Domestic Minimum Top-up Tax (QDMTT), shifting revenue away from India[32].
Monitoring & enforcement at scale- Even after legal adoption, day-to-day supervision is demanding identifying in-scope MNEs; validating revenue-sourcing to Indian users; coordinating relief among relieving and relieved jurisdictions; and managing a heavier MAP/APA docket. Stakeholder submissions highlight the burdensome record-keeping inherent in Pillar 1 sourcing (proof of “internal checks,” category tests), a recipe for controversy if evidentiary expectations diverge across administrations. Building analytics, risk engines, and dedicated international tax cells within CBDT and harmonising protocols with GSTN data where lawful—will be central to credible enforcement.
India’s Policy Dilemma
India stands at a critical juncture in global tax reform. Under Pillar 1, the country must reconcile its longstanding demand for greater taxing rights on digital services with the obligation to withdraw its Equalisation Levy (EL) once the Multilateral Convention takes effect. While Amount A promises a share of residual profits from large multinational enterprises (MNEs), India fears that the eventual allocations may not match the relatively predictable revenue currently secured through the EL. This creates a risk of near-term revenue shortfalls and a dependence on complex international allocation formulas.[33]
Under Pillar 2, India faces a different trade-off. The global minimum tax of 15% could dilute the effectiveness of its incentive-driven regime including Special Economic Zone (SEZ) benefits, concessional tax rates for manufacturing, and R&D deductions by enabling foreign jurisdictions to collect “top-up taxes” if India maintains a lower effective tax rate[34]. Policymakers have signaled the intent to implement a Qualified Domestic Minimum Top-Up Tax (QDMTT) to preserve revenue, but this does not fully mitigate the potential erosion of India’s ability to use tax policy as an industrial strategy.[35]
India’s negotiating stance at the OECD has thus been cautious: it supports a consensus-based solution but remains wary of ceding sovereignty to multilateral dispute-resolution mechanisms that may constrain domestic policy flexibility. This tension between integration into global tax governance and the protection of fiscal autonomy defines India’s current policy dilemma.[36]
Conclusion
The challenges posed by the OECD’s Pillar 1 and Pillar 2 reforms require proactive strategies from both Indian MNEs and domestic tax authorities. For Indian multinationals, especially in the IT and digital services sector, the foremost priority is strengthening compliance capacity. Investment in advanced compliance technology, enterprise resource planning (ERP) systems tailored for global tax reporting, and collaboration with international tax advisors can mitigate risks of misreporting and litigation. [37]Moreover, Indian MNEs must reassess their business models in light of Pillar 2’s effective tax rate (ETR) rules, ensuring alignment between Ind-AS, IFRS, and global tax bases to avoid unintended top-up taxation.[38]
For Indian tax authorities, the way forward lies in institutional reform. The Central Board of Direct Taxes (CBDT) could establish specialised international tax units to deal with the technical complexities of profit allocation and ETR calculations. To avoid the escalation of disputes, India should develop advance dispute prevention frameworks, possibly modeled on cooperative compliance approaches used in OECD jurisdictions. Furthermore, India must advocate for developing country safe harbours during OECD negotiations to reduce the compliance burden on mid-sized exporters.[39]On Pillar 1, India should adopt a phased withdrawal of the Equalisation Levy, ensuring that domestic revenues are safeguarded until Amount A allocations become operational and predictable. Such a gradual approach balances India’s fiscal needs with its commitment to multilateralism.[40]
The implementation of OECD Pillar 1 and Pillar 2 represents one of the most ambitious overhauls of international taxation in decades. For Indian MNEs, the reforms raise daunting challenges ranging from profit attribution complexities under Pillar 1 to intricate ETR computations and the erosion of tax incentives under Pillar 2. For Indian tax authorities, the burden lies in enforcement: developing expertise, managing dispute resolution, ensuring information security, and mitigating potential revenue losses from the withdrawal of unilateral measures like the Equalisation Levy. India thus faces a dual challenge: safeguarding its legitimate taxing rights while avoiding excessive compliance costs that may undermine the global competitiveness of its MNEs. A balanced approach phased reform, robust institutional capacity-building, and continued engagement at the OECD can allow India to align with global norms without compromising fiscal sovereignty or domestic growth objectives.
[1] Organization for Economic Co-operation and Development (OECD), Pillar 1 and Pillar 2 Overview.
[2] EY India, Navigating BEPS Pillar 2 Reforms: Are MNEs Prepared?
[3] International Tax Review, India and the Two-Pillar Solution: The Road Ahead.
[4] OECD/G20 Inclusive Framework, OECD/G20 Inclusive Framework.
[5] OECD/G20 Inclusive Framework, OECD/G20 Inclusive Framework, (2025) (explaining the two-pillar structure).
[6] OECD, Progress Report on Amount A of Pillar One (July 2022) (MNEs in scope: EUR 20 billion revenue, >10 percent profit margin) [hereinafter OECD Amount A Report].
[7] OECD, Pillar One: Amount A Fact Sheet (Section on scope and Amount A design).
[8] Graphene Economics, Understanding Pillar One and Pillar Two: A Taxation Overview (describing the formulaic approach and 25 percent residual profit allocation).
[9] International Tax Review, India and the Two-Pillar Solution: The Road Ahead (discussing Equalisation Levy and its withdrawal).
[10] Taxtmi, Global Minimum Tax and India’s Response (15 percent ETR threshold and implications).
[11] Taxtmi, Global Minimum Tax and India’s Response (impact on India’s tax incentives).
[12] Organisation for Economic Co-operation & Development, Overview—Multilateral Convention to Implement Amount A of Pillar One, at 3–4 (2023), https://www.oecd.org/tax/beps/multilateral-convention-amount-A-pillar-one-overview.pdf.
[13] Deloitte, OECD Pillar One—Amount A Multilateral Convention (2023), https://taxscape.deloitte.com/article/oecd-pillar-one—amount-a-multilateral-convention.aspx.
[14] OECD, Pillar One—Amount A Fact Sheet (2022), https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/cross-border-and-international-tax/pillar-one-amount-a-fact-sheet.pdf.
[15] Id. see also Deloitte, supra note 2 (revenue sourcing by predominant character).
[16] OECD, Tax Challenges Arising from Digitalisation—Pillar One Blueprint 19–26 (2020), https://www.oecd.org/tax/beps/tax-challenges-arising-from-digitalisation-report-on-pillar-one-blueprint.pdf.
[17] OECD, Update to the Economic Impact Assessment of Pillar One 11 (Oct. 2023), https://www.oecd.org/tax/beps/update-to-the-economic-impact-assessment-of-pillar-one-en.pdf.
[18] OECD, Multilateral Convention to Implement Amount A of Pillar One—Explanatory Statement (2023), https://www.oecd.org/tax/beps/explanatory-statement-multilateral-convention-to-implement-amount-a-of-pillar-one.pdf. ; see also OECD, Overview—MLC (tax-certainty framework).
[19] Financial Times, Global tax deal under threat from U.S. politics and fraying consensus (Jan. 31, 2024), https://www.ft.com.
[20] ata Consultancy Services, Integrated Annual Report 2023–24 (showing consolidated revenues ≈ US$29.1 billion), https://www.tcs.com (2024).
[21] Infosys Ltd., Integrated Annual Report 2024–25 29, 275 (showing consolidated revenue ₹1,62,990 crore), https: //www.infosys.com (2025)
[22] Wipro Ltd., Press Release: Q4 FY25 & FY25 Results (Apr. 2025) (noting FY revenue ≈ US$10.4–10.8 billion), https://www.wipro.com.
[23] OECD, Minimum Tax Implemetation Handbook (Pillar Two), at 19–20 (2023) (jurisdictional ETR calculation framework).
[24] KPMG, Impact of the Global Minimum Tax (GloBE) Rules on India, at 1–2 (2025) (highlighting reconciliation issues).
[25] Id. at 1.2.9 (adjustments for permanent differences exceeding €1M).
[26] Taxtmi, Global Minimum Tax and India’s Response (SEZ, R&D deductions, concessional rates impact).
[27] KPMG, Pillar Two and Tax Incentives (Jan 2025), at 1–3 (how incentives may trigger top-up tax).
[28] Id. at 24.
[29] OECD, Tax Incentives and the Global Minimum Corporate Tax (2022), at 7 (recommendation to re-design incentive regimes).
[30] KPMG, Pillar Two and Tax Incentives (Jan 2025), at 2 (CbC Reporting Safe Harbour rules).
[31] See Economic Times, Income tax appeal resolution typical time 15–20 years; steps to cut pendency urged (Jan. 2025), https://economictimes.indiatimes.com.
[32] See also International Tax Review, India’s 2% Equalisation Levy abolished? (2024), https://www.internationaltaxreview.com.
[33] Office of the U.S. Trade Representative, Termination of Action in the DST Investigation of India, 86 Fed. Reg. 68489 (Dec. 2, 2021).
[34] OECD, Minimum Tax Implementation Handbook (Pillar Two) 17–23 (2023), https://www.oecd.org/tax/beps/minimum-tax-implementation-handbook-pillar-two.pdf.
[35] See International Monetary Fund, Tax Policy Reforms 2023: Pillar Two and Developing Countries 14–18 (2023), https://www.imf.org.
[36] Reuters, Keep Global Tax Negotiations at OECD, Not UN, Yellen Says (July 26, 2024), https://www.reuters.com.
[37] OECD, Tax Administration 2023: Comparative Information on OECD and Other Advanced and Emerging Economies 32–35 (2023).
[38] Deloitte, OECD Pillar Two Global Minimum Tax: Implications for India (2023), https://www2.deloitte.com.
[39] OECD, Cooperative Compliance: A Framework (2013), https://www.oecd.org/tax/co-operative-compliance.htm.
[40] Office of the U.S. Trade Representative, Termination of Action in the DST Investigation of India, 86 Fed. Reg. 68489 (Dec. 2, 2021).
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