G20 meet: Around 140 nations close to reaching pact on global tax on MNCs

Proposed two-pillar solution consists of 2 components Pillar One is about reallocation of additional share of profit to market jurisdictions and Pillar Two consists of minimum tax, subject to tax rule

The US, India and about 140 other nations are close to reaching an agreement on the overhauling of global tax norms to ensure that multinationals pay taxes wherever they operate.

At a meeting with Finance Minister Nirmala Sitharaman on the sidelines of G20 finance ministers and central bank governors meeting here, US Treasury Secretary Janet Yellen appreciated India's focus on finalizing the "historic Two-Pillar global tax deal" in the OECD's Inclusive Framework.

"I believe that we are close to reaching an agreement," Yellen said in her remarks at the bilateral meeting.

In a major reform of the international taxation system, about 140 countries, including India, have agreed to an overhaul of global tax norms to ensure that multinationals pay taxes wherever they operate and at a minimum of 15 per cent rate.

However, the deal requires countries to remove all digital services tax and other similar measures and to commit not to introduce such measures in the future.

Some significant issues, including share of profit allocation and scope of subject to tax rules, are yet to be addressed and a 'consensus agreement' would happen after working out the technical details of the proposal.

The proposed two-pillar solution consists of two components Pillar One is about reallocation of additional share of profit to the market jurisdictions and Pillar Two consists of minimum tax and subject to tax rules.

The Organisation for Economic Co-operation and Development (OECD) in an outcome statement issued last week said that a few jurisdictions have expressed concerns "with some specific items" in the multilateral convention (MLC).

"Efforts to resolve these issues are underway with a view to prepare the MLC for signature expeditiously," the OECD said.

India has been calling for G20 countries to ensure that developing nations are guarded against any unintended consequences of the proposed global minimum tax deal.

Developing countries make up almost one-third of the membership of the G20 inclusive framework for taxation.