Tax challenges of digitalisation of economy were identified as one of the main focus areas of the Base Erosion and Profit Shifting (BEPS) Action Plan. Following a mandate by G20 Finance Ministers in March 2017, the Inclusive Framework delivered an Interim Report in March 2018: Tax Challenges Arising from Digitalisation – Interim Report 2018.
Earlier in 2019, Organisation for Economic Cooperation and Development (OECD) published its Programme of Work (PoW) to develop a consensus solution to tax challenges arising from digitalisation of the economy. This PoW contained two principal measures: Pillar One, which would allocate additional taxing rights to market jurisdictions, and Pillar Two, which would introduce a global minimum tax to prevent shifting of profits to low‐tax jurisdictions.
A programme of work to be conducted on Pillar One and Pillar Two was adopted in May 2019 and later endorsed by the G20 in June 2019. As part of the PoW, the OECD Secretariat was mandated to carry out an economic analysis and impact assessment of Pillar One and Pillar Two proposals. In July 2020, the G20 mandated the Inclusive Framework to produce reports on the Blueprints of Pillar One and Pillar Two by the G20 Finance Ministers meeting in October 2020.
Based on inputs from Industry, NASSCOM has submitted a preliminary feedback on the OECD Pillar One Report to Ministry of Finance. As part of our feedback, we have highlighted that provisions of Pillar One are targeted towards large Multi-National Enterprises (MNE) Groups and are applicable to companies meeting the proposed threshold. Very few Indian headquartered MNE groups can be expected to fulfil this threshold and qualify for Amount A. Accordingly, very few Indian entities would have a direct role to play in the context of Pillar One, although India will get taxing right over Amount A.
Further, we have also highlighted that Equalisation Levy imposed by India as an interim unilateral measure, is a gross income proposal (albeit not creditable under the existing treaty framework). In this context, it is important to note that, the US has chosen to opt for Pillar One as a safe harbour, which essentially means a US headquartered MNE Group would have the option of choosing the current regime or the new proposal. In the meanwhile, United Nations (UN) has floated a proposal for including Article 12B in the treaties, in respect of Automated Digital Services (ADS). Significantly, on contrasting Article 12B with the Pillar One proposals, it appears appealing in view of its simplicity and the ability to opt for gross or net taxation, on a creditable basis.
The document is attached for your reference.
We will also submit a detailed feedback on the Pillar One Report to OECD shortly. In this regard, request you to send your inputs on the OECD Report at the earliest (preferably before November 27, 2020) to email@example.com and firstname.lastname@example.org