From creating a fact pattern to splitting data central and forming IP holding companies, multinational firms are looking to work around the minimum global tax that is proposed to be signed by October by over 130 nations.
With a minimum global tax deal imminent by October, multinational companies in India have started evaluating their inter-group transactions, centralised invoicing centres, and cloud infrastructure.
India’s data protection laws combined with tax frameworks, guidelines and recent rulings are set to create complications for them.
Fact pattern
Multinationals are looking to create a ‘fact pattern’ so that they can argue in future that realignment or restructuring of their tax structure was not done merely for saving taxes.
A fact pattern is a set of relationships or transactions that have been established regarding a situation, which could lead to a legal conclusion.
Some companies are looking to split their data centres, intellectual property (IP) holding companies and other such companies as a hedge against the tax uncertainty.
Also, several firms fear that India’s multiple laws targeted at multinationals will significantly increase their tax outgo.
Multinationals are also keeping a tab on GAAR (general anti avoidance rule), significant economic presence (SEP) provisions and other newly introduced taxes and frameworks such as equalisation levies. All these laws are targeted at multinationals that have created structures to escape taxes..
As multinationals and social media giants undertake global overhaul of their tax structures, India’s data protection laws combined with tax frameworks, guidelines and recent rulings are set to create complications for them.
PE threat
Complying with India’s social media guidelines would mean hiring Indian residents to head compliance, as well as nodal and grievance officers.
Companies will have to set up an office for these functions, which might be interpreted by the tax authorities as creating a permanent establishment (PE) in India. PE is a concept in taxation that determines which country has the right to tax a multinational’s income and to what extent.
The tax deal
Several countries are joining hands together to come up with a global tax structure under the Organisation for Economic Cooperation and Development’s Base Erosion and Profit Shifting (BEPS) framework to counter tax evasion by global companies.
Countries have realised that multinationals including Google, Facebook, Amazon, Microsoft and Adobe have created tax structures specifically to escape taxes.
A majority of the members of OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (including India) adopted on Thursday a high-level statement containing an outline of a consensus solution to address the tax challenges arising from the digitalisation of the economy..
The proposed solution consists of two components — Pillar One which is about reallocation of an additional share of profit to the market jurisdictions and Pillar Two consisting of minimum tax and subject to tax rules.
https://cfo.economictimes.indiatimes.com/news/how-multinationals-in-india-are-gearing-up-for-global-tax/84573694
