Topics In Demand
Notification
New

No notification found.

MoF: Submission on OECD Pillar One Multilateral Convention
MoF: Submission on OECD Pillar One Multilateral Convention

November 22, 2023

77

0

As you may be aware, the OECD/G20 Inclusive Framework on Base Erosion and Profit Sharing (BEPS) has been working to develop a consensus-based solution to address tax challenges arising out of digitalisation of the economy. The OECD recently released the Multilateral Convention (MLC) to implement Amount A, together with its Explanatory Statement and the Understanding on the Application of Certainty for Amount A of Pillar One. The MLC reflects the consensus achieved so far among members on the technical architecture of Amount A, with different views on a handful of specific items noted in footnotes by a small number of jurisdictions who are constructively engaging to resolve differences.

We have made a submission to Ministry of Finance providing feedback/ inputs on the MLC.  As part of our submission, we have highlighted certain areas where we believe further work/ intervention is required:

  1. Marketing Distribution Safe Harbour (MDSH): Due to the threshold prescribed for application of MDSH (i.e., adjusted profit before tax in a jurisdiction must be EUR 50m or more), many businesses will not qualify for the safe harbour treatment. Hence, there is a need for removal of the thresholds currently proposed or their lowering to a de minimis threshold of EUR 10 million.
  2. Segmentation rule: Where MNE group does not meet the revenue test and profitability test prescribed under Pillar One – Amount A, but one of the segments disclosed in the consolidated financial statements meets the above tests on a standalone basis, that segment is considered within the scope of Amount A rules. This effectively extends the scope of Amount A and results in additional burden for those multinational groups that would otherwise not be within Amount A scope. Where segmentation rules apply, various adjustments would be required to be applied in the context of the segment (e.g., to the reported financial information, application of MDSH and elimination of double taxation mechanism), which further complicates matters for businesses, that would otherwise not be in scope. Hence, we have recommended that the segmentation rule be removed. If it is decided that the segmentation rule is needed, we suggest inclusion of a provision that proportionately reduces the incidence of Amount A relative to the profitability of the Group.
  3. Withholding taxes: Many issues around Withholding Taxes (WHT) on royalties, technical fees/services and interest, which allocate tax to market jurisdictions, have already been addressed. However, as noted in the current consensus, various points remain open with regards to the adjustments for WHT, including reservations from a number of Inclusive Framework members (including India) as to the proposed treatment. In particular, the resolution of the matter of Withholding Tax upward adjustment referred to in Article 11(2)(c)(i)B (pertaining to Allocation of Amount A as reduced by MDSH and further reduced by the proposed Withholding Tax upward adjustment) is essential to ensure that there is no incidence of double taxation.
  4. Autonomous domestic business exemption: The MLC highlights that where autonomous domestic business exemption applies, financial results of a covered group are excluded for profit allocation under Amount A. The definition of autonomous domestic business includes MNE groups with decentralised business models and limited intercompany transactions and prescribes certain threshold. These thresholds are very high and may not be useful as few MNEs undertake activities that are genuinely contained within a single jurisdiction. Hence, the threshold limits prescribed for autonomous domestic business exemption should be relaxed to allow for more exclusions.
  5. Sourcing rules: The sourcing rules are based on the “best estimate” of where final revenues are ultimately sourced based on customer location by using key indicators and allocation keys. This would require collation of data that may not necessarily be collated today, which will be an onerous task for businesses. Hence, we have recommended that flexibility is provided to businesses to choose the relevant indicators or the allocation keys as they deem appropriate in the initial years, so that the data gets refined as corporations actively tie up their supply chain and accounting/ tax data exchange with least business disruptions.

For more information on this issue, please write to tejasvi@nasscom.in


That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.


Tejasvi

© Copyright nasscom. All Rights Reserved.