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OECD: Consensus based solution to the tax challenges arising from digitalisation of the economy
OECD: Consensus based solution to the tax challenges arising from digitalisation of the economy

March 26, 2025

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The digital revolution is fundamentally reshaping economic landscapes, driving unprecedented innovation and transformation. By leveraging digital technologies, economies can unlock new opportunities for value creation, enhance productivity, and improve overall societal well-being. However, the rapid and comprehensive nature of this digital transition simultaneously presents complex challenges across multiple policy domains, with taxation emerging as a particularly intricate area of concern.

The tax challenges of the digitalisation of the economy were identified as one of the main areas of focus of the Organization for Economic Cooperation and Development (OECD)/G20 Base Erosion and Profit Shifting (BEPS) Project, leading to the 2015 BEPS Action 1 Report (Action 1 Report). The Action 1 Report found that the whole economy was digitalising and, as a result, it would be difficult, if not impossible, to ring-fence the digital economy. THE OECD BEPS 2.0 sets out to provide a tax reform framework allowing for more transparency in the global tax environment. It aims to develop a consensus-based solution to address tax challenges from digitalization, and consists of two pillars: Pillar One, focused on reallocating profits to market jurisdictions, and Pillar Two, addressing global minimum taxation. 

Pillar One –

Amount A - Amount A entails a framework to shift a portion of taxable profits away from jurisdictions where profits are booked currently and move them to jurisdictions where sales are made to final consumers. It provides jurisdictions in which consumers and users are located a new taxing right over a portion of the residual profits of the largest and most profitable multinational enterprises (MNEs) in the world. Amount A applies only to MNEs with global revenue over EUR 20 billion and total profits greater than 10% of their global revenue.

Amount B

Currently,mount B applies only to distribution companies. Hence, our industry is not covered within the scope of Amount B currently.  Amount B is intended to streamline the process for pricing baseline marketing and distribution activities in accordance with Arm’s Length Principle (ALP), thereby aiming at enhancing tax certainty and reducing resource-intensive disputes between taxpayers and tax administrations. The current scope of Amount B under Pillar 1 covers companies engaged in:

  1. buy-sell marketing and distribution transactions
  2. sales agency and commissionaire transactions.

Pillar Two –

Pillar Two sets out global minimum tax rules designed to ensure that large multinational businesses pay a minimum effective rate of tax of 15% on profits in all countries.

As nasscom, we have responded to the consultation papers released by OECD from the perspective of Indian IT-ITeS industry. Our submissions can be accessed from here:

  1. Submission on Pillar One - Amount B – Link
  2. Submission on Pillar One Multilateral Convention - Link
  3. Submission on Amount B under Pillar One – Link
  4. Submission on Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures - Link
  5. Submission on Progress Report on administration and tax certainty aspects of Pillar One - Link
  6. Submission on Progress Report on Amount A of Pillar One - Link

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