India agrees to global tax framework on taxing multinationals

United Nations: India has agreed to a pathbreaking international framework with 129 other countries for taxing multinationals that could impact its ability to tax them and have the potential to douse trade wars over taxing tech giants.

India and the other countries issued a joint statement on Thursday affirming support for the proposed framework which has at its core a global minimum corporate tax of 15 per cent and makes way for countries to tax multinational enterprises (MNEs), especially tech giants like Google, Facebook and Amazon, on their earnings there.

"It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there," said the Organisation for Economic Cooperation and Development (OECD), which coordinated the development of the plan.

It "will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies", the OECD said.

India and the administration of President Joe Biden are embroiled in a dispute over New Delhi imposing a two per cent tax on earnings in the country by foreign technology and e-commerce companies like Amazon, Facebook and Google.

Biden's administration retaliated with a threat to raise import duties on a range of imports, from prawns and Basmati rice to furniture and jewellery, but kept it in abeyance hoping the new global tax framework could resolve it.

The OECD, which said that it expected the framework to be finalised in October for implementation in 2023, estimated that it would generate additional annual global tax revenues of around $150 billion that will be shared by various countries.

"Additional benefits will also arise from the stabilisation of the international tax system and the increased tax certainty for taxpayers and tax administrations," the OECD said.

The framework got the approval of the G7 leaders last month and is expected to come up at the meeting of the finance ministers of the G20 group of major economies in Venice next week.

Biden and his Treasury Secretary Janet Yellen propelled the negotiations for the framework with the goal of preventing US companies fleeing to countries like Ireland, Hungary and Lichtenstein and those in the Caribbean region with lower corporate taxes.