Global Minimum Tax (BEPS 2.0) and Its Impact on Indian Businesses

🔹 Introduction – Why Global Minimum Tax is a Game-Changer

In a globalized economy, multinational enterprises (MNEs) operate across multiple jurisdictions. This creates opportunities for tax planning, profit shifting, and base erosion â€” practices that allow companies to minimize tax by routing profits through low-tax countries like Ireland, Singapore, or the UAE.

To counter this, the OECD (Organisation for Economic Co-operation and Development) launched the Base Erosion and Profit Shifting (BEPS) 2.0 initiative, introducing the Global Minimum Tax (GMT) of 15%. For India — a country with a rapidly growing digital economy and an expanding multinational presence — this reform has significant implications.

🔹 What is BEPS 2.0?

BEPS 2.0 is structured around two pillars:

📍 Pillar One – Reallocation of Profits

  • MNEs with global turnover above a threshold will allocate part of their profits to “market jurisdictions” — i.e., countries where customers are located, not just where the company is headquartered.
  • This is crucial in the digital economy, where companies like Google or Amazon earn significant revenue from India without having a physical presence here.

📍 Pillar Two – Global Minimum Tax (GMT)

  • Introduces a minimum corporate tax rate of 15% across all jurisdictions.
  • Even if an MNE shifts profits to a low-tax country, it will still need to pay the difference up to 15%.
  • Prevents “tax shopping” by companies.

🔹 Why BEPS 2.0 Matters for India

  1. Curbing Profit Shifting: Indian MNEs often route profits via Mauritius, Singapore, or the UAE. With GMT, this strategy loses appeal.
  2. Higher Revenue Mobilization: India stands to gain from taxing MNEs on profits attributable to Indian consumers.
  3. Level Playing Field: Domestic businesses, which pay full tax in India, will no longer be at a disadvantage compared to foreign MNEs.
  4. Boost to Transparency: It enhances India’s reputation as a responsible tax jurisdiction, attracting ethical global investors.

🔹 Impact on Indian Businesses

1. Indian IT & Digital Companies

  • IT companies like Infosys, TCS, and Wipro, which operate globally, may face higher compliance burdens.
  • Profits earned in low-tax jurisdictions will be subject to GMT adjustments.

2. Pharma & Manufacturing MNEs

  • Pharma companies often use tax-friendly jurisdictions for R&D units. GMT reduces tax arbitrage opportunities.
  • Manufacturing MNEs may need to restructure supply chains and profit allocations.

3. Startups Expanding Abroad

  • Many Indian unicorns (e.g., fintech, e-commerce) set up entities in Singapore or the UAE. GMT reduces the tax benefits of such structures.

4. Compliance & Documentation

  • Businesses must maintain robust transfer pricing documentation.
  • They need to assess effective tax rates (ETR) in every jurisdiction where they operate.

🔹 Opportunities for India

  1. Increased Tax Collections: Market jurisdiction rules ensure that India receives its fair share of tax from global giants like Google, Facebook, and Amazon.
  2. Encouragement for Local Investment: As offshore arbitrage shrinks, Indian businesses may prefer to keep operations within India.
  3. Alignment with Global Standards: Compliance with BEPS 2.0 enhances India’s image in international trade negotiations.

🔹 Challenges for Indian Businesses

  1. Increased Compliance Costs: Companies will need global tax teams and advanced compliance systems.
  2. Risk of Double Taxation: If treaties are not updated, businesses may end up paying tax twice.
  3. Impact on Competitiveness: Higher tax outgo could affect profitability of MNEs.
  4. Uncertainty in Implementation: Each country may adopt BEPS differently, leading to complex scenarios.

🔹 Case Study Example

Let’s consider Company X, an Indian IT firm with subsidiaries in Singapore and Ireland.

  • Ireland taxes corporate income at 12.5%, below the GMT threshold.
  • Under BEPS 2.0, the parent company (India) will need to “top up” the tax to 15%.
  • Effectively, tax planning advantages reduce, and compliance increases.

 Lesson: Indian MNEs must recalculate effective tax rates and restructure accordingly.

🔹 ICAI & OECD Guidance

The ICAI (Institute of Chartered Accountants of India) has emphasized the need for:

  • Stronger transfer pricing audits.
  • Training Indian professionals in global taxation practices.
  • Adoption of OECD guidelines for consistent compliance.

OECD has issued a Model Rules framework, guiding how countries should implement GMT. India will align its tax laws with these standards gradually.

🔹 Practical Implications for Businesses

âś… What Indian MNEs Should Do Now

  • Review global structures to identify low-tax jurisdictions.
  • Calculate effective tax rates (ETR) across subsidiaries.
  • Update transfer pricing policies to match OECD guidelines.
  • Prepare for increased disclosures in annual filings.
  • Invest in AI-powered compliance systems for accuracy.

🔹 FAQs – Common Questions

Q1: Will BEPS 2.0 raise India’s corporate tax rate?
👉 No, India’s rate (22%) is already above 15%. But Indian companies with subsidiaries in low-tax nations will face adjustments.

Q2: Does BEPS 2.0 apply to all companies?
👉 No, only to MNEs above a turnover threshold (currently €750 million globally).

Q3: What is the biggest challenge for Indian businesses?
👉 Compliance costs, restructuring of global entities, and treaty interpretation.

Q4: How soon will India implement it?
👉 India has committed to OECD timelines — phased rollout expected by FY 2025–26.

🔹 Compliance Checklist for Indian MNEs

âś… Map all global subsidiaries and identify ETR gaps.
âś… Align transfer pricing documentation with OECD rules.
âś… Monitor treaty changes with Singapore, UAE, Mauritius.
âś… Set up compliance teams or outsource to experts.
âś… Educate boards and CFOs about risks and strategies.

🔹 Conclusion – Preparing for a New Tax World

The Global Minimum Tax (BEPS 2.0) is more than a tax reform — it is a restructuring of global business practices. For India, it ensures fair tax revenue from global giants and boosts transparency.

For Indian MNEs, however, it means:

  • Higher compliance costs.
  • Shrinking opportunities for aggressive tax planning.
  • A need to restructure operations for tax efficiency.

 Final Message: Indian businesses must prepare early by evaluating global structures, training professionals, and investing in compliance. BEPS 2.0 is inevitable, and proactive adaptation is the only way forward.

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