G7 proposal on MNC tax: India wants wider ambit

India is likely to pitch for a wider application of the global proposal to tax multinationals endorsed by the G7, seeking that it cover all of those identified by the OECD and not just the top 100 as well as a higher share, said officials aware of the matter.

Earlier this month, the G7 countries endorsed a proposal to impose a minimum tax on MNCs and digital enterprises, which have usually paid low taxes or avoided taxes altogether by shifting profits to low tax jurisdictions. The G7 proposal envisages running a pilot with 100 MNCs as against about 2,000 that were identified by the OECD.

If the proposal is accepted, India would have to remove the 2% equalisation levy on sales of digital multinationals even as the current proposal may not yield as much revenue. A wider application would ensure India does not lose tax under the new regime.


The proposal is expected to be taken up in July at the G20-OECD Inclusive Framework on base erosion profit sharing (BEPS). The framework brings together 139 countries. The G20 is a group of key global economies including India that account for 80% of world GDP.

“India would want a wider application of the tax proposal to cover all MNCs,” said a government official, adding that restricting it to a select few would not achieve the objective behind the move. “Moreover, India would also want a higher share in revenues apportioned.”

The G7 plan suggests taxing rights for market jurisdictions where customers are located on at least 20% of profit exceeding a 10% margin for the largest and most profitable MNCs.

This implies that large MNCs with at least a 10% profit margin will need to pay tax in countries where they have a presence and not where they are based.

It also proposes a global minimum tax rate of at least 15% on a country-by-country basis, which takes care of the distortions caused by low-tax jurisdictions.

New Delhi holds the view that multinationals getting substantial digital revenues from countries such as India, though not physically present in the country, should pay taxes locally. Based on this principle, it has imposed an equalisation levy on such digital companies.

India has been actively participating in the discussions on a global tax deal at the OECD and backs the principle underlying the talks.

The idea now will be to ensure that the global agreement addresses New Delhi's concerns, said the person cited above. Experts endorsed India’s stand.

“As regards the second proposal, it recognises the right of ‘market countries’ like India to get a part of global profits of MNCs allocated to India based on economic activities generated in India,” said Sudhir Kapadia, national tax leader, EY. “However, it may not be materially beneficial unless the restriction on applicability to 100 top MNCs is removed and the threshold rate of 10% profitability is relaxed.”

Under the current proposal, India’s revenue would be much less than it gets from the equalization levy.

“It is but natural that India will want to push back on the proposals on both these counts,” said Dinesh Kanabar, chief executive officer, Dhruva Advisors.