According to a recent report, 18 of the EU’s 27 nations have put in place domestic laws for the global minimum tax as per a EU directive.
- It means, Indian multinational companies will be subject to a 15% global minimum tax rule (Global Anti-Base Erosion (GloBE)) in those countries after they implemented rules for the tax reform.
- Some 130 countries (including India) have signed off on the global tax reform. But some countries have implemented domestic rules, which are effective from 1 January 2024 or later.
- The implementation of the Global Anti-Base Erosion (GloBE) rules in these countries from 1 January, Indian headquartered MNCs with a presence there will be required to comply with the GloBE rules even if India is yet to implement it.
- Indian multinational groups will have to provide for top-up tax, if applicable, in their financial statements for the year ended 31 March 2024.
- The 15% global minimum tax rule–agreed to by the 130 countries in 2021 to prevent tax avoidance by multinationals—allows them to levy a ‘top-up tax’ on the intermediate holding company or the ultimate parent of an entity which artificially shows profits in a low-tax jurisdiction.
- The global minimum tax regime is referred to as pillar two of the drive against tax avoidance.
- The top-up tax is the difference between the globally agreed minimum tax rate of 15% and the effective tax rate (ETR) the entity in the low-tax jurisdiction is subject to.
- If the low-tax country does not neutralise its tax advantage by introducing a Qualified Domestic Minimum Top-up Tax (QDMTT), the intermediate holding company or the ultimate parent in other jurisdictions will be subject to a top up tax.
