Budget 2024: 175 big MNCs' units gear up for new global minimum taxes, review rules

MUMBAI: About 175 multinationals operating in India, which have consolidated global turnover of over Rs 750 million, have undertaken a comprehensive review of their current tax structures and frameworks in anticipation of forthcoming regulations concerning global minimum taxation.

As per a PwC study, around 175 arms of multinationals operating in India qualify for consideration under Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two regulations.

The rule applies to any multinational company that is part of a multinational group with annual revenue of Rs 750 million or more in the consolidated financial statements of the ultimate parent entity for at least two of the four fiscal years just before the tested fiscal year.


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Under the "Global Anti-Base Erosion" or "GloBE" Regulation, the Pillar Two Model Rules are crafted to ensure large multinational enterprises (MNEs) pay a minimum level of tax (at least 15%) on the income arising in each jurisdiction where they operate.

In India, Pillar Two provisions may be incorporated into either the February vote-on-account budget or the full-fledged budget in July, with the possibility of the government sharing a draft law or rules for consultation, say tax experts.

"Pillar Two is already a reality, with it being effective in several countries with effect from January 1, 2024. Given the rapid pace of implementation globally, India may not want to be left behind in the implementation of Pillar Two. So, India might make some announcements in the first full budget after the elections, if not earlier. There are about 175 MNEs operating in India that will be impacted due to these regulations," said Sanjay Tolia, partner, Price Waterhouse & Co. LLP.

Tax experts say though all large Indian arms of MNCs have undergone a tax analysis as part of the global tax exercise, most won't incur any additional taxes in India under the current tax structure.

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"Multinationals operating in India should not be impacted, as the lowest rate of corporate tax in India (on new manufacturing units) is above the minimum threshold of 15%. However, if any MNC has invested in India through an intermediate jurisdiction that happens to have a tax rate below 15%, there could be an additional tax impact for the MNC in its home country. Even in this structure, India will not obtain any additional tax revenues given the lowest rate of tax being over 15% in India," explained Sudir Kapadia, Partner, Tax and Regulatory Services, EY India.

PwC's Tolia said Pillar Two is an unprecedented change in corporate international taxation.

"Tax functions and related stakeholders must prepare in detail for the end-to-end process for Pillar Two compliance. With around 260 data points, most outside of the ERP systems, the approach to recording and collecting data will be one of the most critical elements of Pillar Two readiness," he said.