Indian MNCs have to start accounting for global minimum tax liabilities

livemint.com:

Mint, Deloitte said that given the implementation of the Global Anti-Base Erosion (GloBE) rules in these countries from 1 January, Indian headquartered multinational business groups with a presence there will be required to comply with the GloBE rules even if New Delhi is yet to implement it. Accordingly, Indian multinational groups will have to provide for top-up tax, if applicable, in their financial statements for the year ended 31 March 2024, Deloitte said in its analysis.

Eighteen of the EU's 27 nations have put in place domestic laws for the global minimum tax as per a EU directive, Deloitte said. The 15% global minimum tax rule–agreed to by the 130 countries in 2021 to prevent tax avoidance by multinationals—allows them to levy a ‘top-up tax’ on the intermediate holding company or the ultimate parent of an entity which artificially shows profits in a low-tax jurisdiction.

The global minimum tax regime is also referred to as pillar two of the drive against tax avoidance. The top-up tax is the difference between the globally agreed minimum tax rate of 15% and the effective tax rate (ETR) the entity in the low-tax jurisdiction is subject to.

If the low-tax country does not neutralise its tax advantage by introducing what is called a Qualified Domestic Minimum Top-up Tax (QDMTT), the intermediate holding company or the ultimate parent in other jurisdictions will be subject to a top up tax. Even in cases where the intermediate holding company or the ultimate parent is in a low-tax jurisdiction, the global tax deal allows a way of neutralizing the tax advantage by subjecting group entities in countries with above 15% tax rates to additional tax.