Will FM take the two steps towards Pillar Two?
Manoj Rathi
Partner at EY | Corporate Tax | Tax Technology | GenAI in Tax (Views expressed are personal, unless stated otherwise)
Given how the EU, UK, Swiss, South Korea are taking giant strides towards Pillar Two implementation effective 1 Jan 2024, no good reason for India to go slow.
If India fails to introduce QDMTUT, IIR and UTPR framework in the upcoming budget, it will only mean a direct loss of tax revenue for India (no matter how small or big) given how the web of inter-locking GloBE rules works. While India may be more excited for STTR introduction, this may need to wait for at least another year (if not more) for global alignment.
Top 5 Pillar Two expectations from upcoming budget:
1. Introduction of QDMTUT since 15% ETR as per present Indian tax rules may in some cases end up being below 15% as per GLoBE framework and failure to introduce QDMTUT may mean direct loss of tax and overseas jurisdiction(s) implementing IIR or UTPR may end up collecting the same
2. Clarity on interplay of existing MAT provisions (including MAT credit) with QDMTUT
3. Introduction of IIR (or a modified CFC regime) and UTPR, though present relevance would be limited to Indian MNEs crossing the qualifying threshold of Eur 750 mn and having presence in low tax jurisdictions which fail to introduce QDMTUT
4. FM may be tempted to put a overriding condition or create a carry forward mechanism for deductions which do not result into a corresponding deferred tax liability (for eg, section 80JJAA and 10AA) such that ETR (as per GloBE framework) does not fall below 15%
5. While India has been pushing for expansion of STTR scope to include service payments and capital gains, for the present scope, India may review preferential tax provisions like 194LB/ LC and add suitable STTR riders