Key Concepts
- BEPS 2.0: OECD/G20 project addressing tax challenges from the digitalised economy
- Pillar One determines where companies pay taxes; Pillar Two determines how much
- Pillar Two prescribes a global minimum corporate tax rate of 15% on a jurisdictional basis
- GloBE rules apply to MNE groups with consolidated revenue of EUR 750 million+
What is BEPS 2.0?
Base Erosion and Profit Shifting (BEPS) relates to avoidance of tax by multinational enterprises through use of harmful tax strategies or exploitation of loopholes to artificially shift profits to low or no-tax jurisdictions. Over 135 Inclusive Framework members, representing more than 95% of global GDP, agreed on a two-pillar solution to reform international taxation rules.
Pillar One — Where Companies Pay Tax
Amount A
Amount A applies to MNEs with global revenue over EUR 20 billion and total profits greater than 10% of global revenue. It seeks to reallocate taxing rights over a portion of excess profit from residence countries to market jurisdictions, even without physical presence. This is particularly relevant as countries with large customer bases have already begun levying digital services taxes unilaterally.
Amount B
Amount B simplifies existing transfer pricing rules for baseline marketing and distribution activities, applying to qualifying wholesale distributors of tangible goods. The arm’s length margin range (1.5%–5%) depends on industry grouping, operating asset intensity, and operating expense intensity. India has flagged multiple reservations on the computation mechanisms.
Pillar Two — Global Minimum Tax of 15%
GloBE Rules
Global Anti-Base Erosion rules seek to impose a minimum 15% effective tax rate on a jurisdictional basis. They apply to MNE groups with consolidated revenue of EUR 750 million or more. Where ETR in a jurisdiction falls below 15%, a Top-up Tax is levied to bring total tax up to the minimum rate. A Substance-Based Income Exclusion (SBIE) provides relief for entities with genuine economic activities, based on tangible assets and employee costs.
Subject to Tax Rule (STTR)
STTR is a treaty-based rule allowing countries to retain taxing rights on certain intra-group payments (interest, royalties, service fees) that are subject to nominal rates below 9% in the recipient’s jurisdiction. It may apply even where MNEs are not subject to GloBE rules.
India’s Position
India has flagged reservations on Amount B computation mechanisms. For Pillar Two, India’s approach to QDMTT (Qualified Domestic Minimum Top-up Tax) and SBIE carve-outs will significantly affect how Indian operations of multinationals are impacted. The publication provides detailed analysis of India’s positioning and implications for MNEs with Indian operations.