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 — 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

✅ 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

✅ Map all global subsidiaries and identify ETR gaps.
✅ Align transfer pricing documentation with OECD rules.
✅ Monitor treaty changes with Singapore, UAE, Mauritius.
✅ Set up compliance teams or outsource to experts.
✅ 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.

Leave A Reply