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OECD Global Tax Deal
Context
Trump administration has decided to withdraw from the landmark 2021 OECD (Organization for Economic Co-operation and Development) Global tax deal.
About the Tax Deal:
- The OECD Global Tax Deal was negotiated in 2021 and involved over 140 countries, including both developed and developing nations.
- It emerged from the Base Erosion and Profit Shifting (“BEPS”) project, launched in 2013 to combat tax avoidance by multinational corporations.
- The deal aimed to:
- Set a global minimum tax rate of 15% for large multinational corporations, preventing companies from shifting profits to low-tax jurisdictions.
- Introduce Pillar II, which allows signatory countries to impose top-up taxes on U.S. multinationals if their profits are taxed below 15% in their home country. This was a mechanism to ensure that large companies pay a fair share of taxes, regardless of where they are headquartered.
- The agreement also included measures to address digital taxes that were seen as disproportionately affecting U.S. tech giants, such as Apple, Google, and Amazon.
- More than 140 countries (including India) have signed up to the Global Minimum Tax deal.
Implications of U.S. Pullout:
- Global Tax Coordination: With the U.S. withdrawing from the deal, it could lead to uncertainty in global tax coordination. The U.S. has historically been a key player in international economic agreements, and its absence may reduce the effectiveness of the Global Tax Deal.
- Impact on U.S. Multinationals: The withdrawal could benefit S. tech giants by ensuring that they do not face additional tax liabilities in other countries, especially those related to top-up taxes under the OECD agreement. These companies would continue to avoid the 15% minimum tax in foreign jurisdictions, potentially reducing their overall tax burden.
- Impact on India: India, like other countries, could face challenges in enforcing tax policies on global digital services. The U.S. withdrawal from the deal may limit India's ability to apply top-up taxes on U.S. multinational corporations operating in India. Additionally, India's proposed 2% equalization levy on foreign tech giants might come under pressure if other countries align their tax policies with the OECD framework. This could affect India’s ability to generate revenue from international tech firms.
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