US, India, Among 140 Nations Close to Historic Agreement on Global Tax Overhaul

In a significant development, the United States, India, and more than 140 other nations are on the verge of reaching a groundbreaking agreement on the overhaul of global tax norms.

The aim is to ensure that multinational corporations pay their fair share of taxes in the countries where they operate. This step was highlighted during a bilateral meeting between US Treasury Secretary Janet Yellen and Indian Finance Minister Nirmala Sitharaman on the sidelines of the G20 finance ministers and central bank governors meeting.

Yellen commended India's commitment to finalizing the "historic Two-Pillar global tax deal" within the Organisation for Economic Co-operation and Development's (OECD) Inclusive Framework. Expressing optimism, she stated, "I believe that we are close to reaching an agreement."

Aimed at reforming the international taxation system, this agreement involves approximately 140 countries, including India. The proposed reforms seek to ensure that multinational corporations pay taxes wherever they operate, with a minimum tax rate set at 15%. However, to proceed with the deal, participating countries must eliminate any existing digital services tax or similar measures and commit to refraining from introducing such measures in the future.

Multinationals to Pay Taxes Wherever They Operate, Minimum Rate of 15% Proposed

While progress has been made, certain significant issues, including the allocation of profit shares and the scope of subject-to-tax rules, still require resolution. A "consensus agreement" will be reached once the technical details of the proposal have been thoroughly worked out.

The proposed two-pillar solution consists of the following components: Pillar One involves reallocating an additional share of profit to the market jurisdictions, while Pillar Two encompasses the implementation of a minimum tax and subject-to-tax rules.

In a recent outcome statement, the OECD acknowledged that a few jurisdictions have expressed concerns regarding specific aspects of the multilateral convention (MLC). The organization assured that efforts are underway to address these issues promptly, with the aim of preparing the MLC for signature in a timely manner.

India has been advocating for G20 countries to safeguard the interests of developing nations against any unintended consequences arising from the proposed global minimum tax deal. Developing countries account for nearly one-third of the membership within the G20 inclusive framework for taxation.

As negotiations continue, the international community is approaching a historic milestone in the realm of global taxation. The potential agreement represents a significant step forward in ensuring fair and equitable taxation for multinational corporations, providing a level playing field for countries around the world.