5th Annual Direct Tax Summit and Awards 2022

Maulik Doshi - Deputy Managing Director - Transfer Pricing and International Tax, Nexdigm, begins his segment by introducing the Pillar - I, what it aims to seek through its adoption, and its key elements. Maulik elucidates this with an example for allocation which entails the case of a multinational enterprise based in the USA, which has businesses with and without a physical presence in various markets.

After explaining Pillar - I, Maulik describes Pillar - II, which is the minimum corporate tax. He mentions that Pillar - II was introduced with the idea to stop harmful tax competition, commonly referred to as the race to the bottom. The presentation then talks about the globe rules, the four rules of minimum corporate tax which are the Subject To Tax Rule (STTR), the Income Inclusion Rule (IIR), the Undertaxed Payment Rule (UTPR), and the Switchover Rule (SOR).

Maulik explains how the Effective Tax Rate (ETR) is calculated and how the effective 15% ETR is to be derived. Here, he points out that the calculation of the ETR must be done at a country level by consolidating all the company branches within that particular country. He then covers the adjustments for tax, carry forward losses, and substance-based carve out to be carried out, and also how the top-up tax is to be computed and allocated to each entity in the jurisdiction, especially if ETR is lower than the global minimum.

Next, Maulik explains the STTR in-depth with an example covering the Corporate Income Tax (CIT) rate of a company operating within India, the UK, and Australia. The slides also cover some key assumptions such as the STTR trigger rate, the Globe minimum tax rate, the statutory tax rate in Australia with the available incentives, and the various steps to calculate the STTR, with a three-step example.

After covering his segment, Maulik and the panelists discuss various complex global issues such as -

• the withdrawal of the unilateral measures by India,
• whether the implementation of Pillar I and II would prompt companies to revisit their global transfer pricing policies,
• if the Pillar I and II thresholds kept by the OECD benefit Indian companies,
• how Indian outbound companies would re-look at their structures with the implementation of Pillar I and II along with its timelines,
• and the derailment caused to the aforementioned timeline due to the Russia-Ukraine crisis and whether this would cause any rework on the Pillars.