G20 reaffirm support for united approach to tax digital firms
Oct 19: Finance ministers drawn from the G20 countries have reaffirmed their full support for a consensus based solution for taxing the digital economy.
The target is to reach the broad contours of a unified tax framework by end of next year.
As reported by TOI+ in its edition of October 10, the draft Secretariat Proposal released by the Organisation for Economic Co-operation and Development had called for re-allocation of some profits of highly digitized companies and giving taxing rights to the countries where the customers were.
Under this approach, multinational enterprises, such as Google, Facebook, Amazon, etc, which have a huge consumer base in several countries, but no physical presence, would have to pay some portion of their profits in these countries. The stakes are high for India, which has a significant customer base. The proposed rules would determine where the tax should be paid (nexus rules) and on what portion of profits they should be taxed (profit allocation rules).
India's finance minister, Nirmala Sitharaman, stated that a unified approach to the nexus and profit allocation challenges is a promising one that merits serious attention. A government press release quotes her as saying "A solution that is simple to implement, simple to administer and simple to comply with is needed."
Sitharaman had led the Indian delegation to the Annual Meetings Plenary session of the International Monetary Fund and the World Bank Group held in Washington this week.
In a press statement, the G20 ministers stated: "We reaffirm our full support for a consensus based solution with a final report to be delivered by end of 2020. With a view to meeting this ambitious timeline, we stress the importance of the Inclusive Framework agreeing to the outlines of the architecture by January 2020."
The next meeting of members of the Inclusive Framework (representing 130 countries) is slated to be in January 2020, followed by another in June.
Facilitated by the OECD, the work program of the Inclusive Framework comprises of a two-pillar approach. The first pillar focuses on the allocation of taxing rights, and seeks to undertake a coherent and concurrent review of the profit allocation and nexus rules (Pillar 1). The second pillar seeks to address the risks of profit shifting to entities subject to no or very low taxation (Pillar 2). -TNN