Multinational digital companies will have to pay a minimum tax rate of 15% in 136 countries including India after a new tax deal was finalised by the Organisation for Economic Co-operation and Development (OECD), the organisation announced in a press release on October 8. The deal is estimated to reallocate USD 125 billion in profits from 100 multinational companies to countries across the world, the press release said. Digital taxes have been a sticking point for many jurisdictions trying to bring globalised digital services under the ambit of local tax laws. The OECD deal sets a common taxation framework that will reallocate taxes equitably among participating countries. What is the OECD's 'Two-Pillar' solution? In order to distribute taxes equitably and limit the negotiating power of large digital companies, the OECD has devised a 'two-pillar' solution which involves 1) shifting taxing rights to the markets where profit is earned and 2) setting a floor for corporate income tax: Pillar 1: Taxing rights for profits will be shifted from "home countries to the markets where they have business activities and earn profits," under Pillar 1. Scope: Multinational enterprises (MNEs) with global turnover above 20 billion euros and profitability above 10% (i.e. profit before tax/revenue). Timeline: The OECD aims to complete the procedure to put Pillar 1 in place by the end of 2022, including getting signatures on its multilateral convention and releasing model rules that countries can adopt to implement the plan. Impact: Taxing rights on at least USD 125 billion of profit…
