{"id":34508,"date":"2022-11-26T03:49:17","date_gmt":"2022-11-25T22:19:17","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=34508"},"modified":"2025-04-20T14:29:06","modified_gmt":"2025-04-20T08:59:06","slug":"in-a-1st-un-to-call-shots-on-global-tax-rules","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/in-a-1st-un-to-call-shots-on-global-tax-rules\/","title":{"rendered":"In a 1st, UN to Call Shots on Global Tax Rules"},"content":{"rendered":"<h3><strong>What\u2019s in today\u2019s article?<\/strong><\/h3>\n<ul>\n<li><strong>About OECD and its Pillar two rules<\/strong><\/li>\n<li><strong>News Summary<\/strong><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>Why In News?<\/strong><\/h2>\n<ul>\n<li>Recently, the United Nations (UN) General Assembly unanimously accepted a resolution sponsored by Nigeria that advocates for the creation of an international tax cooperation mechanism.<\/li>\n<li>With this mechanism, emerging countries in Africa and Asia are expected to have a greater say in the formulation of global tax regulations.\n<ul>\n<li>As a result, the OECD&#8217;s (Organisation for Economic Co-operation and Development) 60-year reign as a global tax rule maker is coming to an end.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>OECD (Organisation for Economic Co-operation and Development):<\/strong><\/h2>\n<ul>\n<li>It is an intergovernmental organisation founded in\u00a0<strong>1961<\/strong>\u00a0(under the Rome Treaties of 1957) with 38-member countries, which describe themselves as committed to democracy and the market economy.<\/li>\n<li>It was to stimulate economic progress and world trade by providing\u00a0<strong>a platform to compare policy experiences<\/strong>, seek answers to common problems, identify good practices and coordinate domestic and international policies of its members.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>OECD&#8217;s Pillar Two model rules:<\/strong><\/h2>\n<p><img decoding=\"async\" src=\"https:\/\/vajiramandravi.s3.us-east-1.amazonaws.com\/media\/editor_images\/2022\/11\/26\/13\/14\/10\/6381c3cadc872c05bb70bf83_OI.PNG\" alt=\"\" \/><\/p>\n<ul>\n<li>These rules were agreed in 2021 by 137 countries and jurisdictions under the OECD\/G20 Inclusive Framework on\u00a0<strong>BEPS<\/strong>.\n<ul>\n<li>Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to shift profits from higher-tax jurisdictions to lower\/no-tax jurisdictions, thus eroding the tax-base of the higher-tax jurisdictions.<\/li>\n<li>The OECD defines BEPS strategies as\u00a0<u>exploiting gaps and mismatches in tax rules<\/u>.<\/li>\n<\/ul>\n<\/li>\n<li>The rules provide governments\u00a0<strong>a precise template for taking forward the two-pillar solution<\/strong>\u00a0to address the tax challenges arising from\u00a0<u>digitalisation and globalisation<\/u>\u00a0of the economy.\n<ul>\n<li><strong>Pillar 1<\/strong>\u00a0aims to ensure a better distribution of taxation of multinationals according to the countries in which they operate.<\/li>\n<li><strong>Pillar 2\u00a0<\/strong>aims to control tax competition on corporate profits by introducing a global minimum tax of 15% from 2023.<\/li>\n<\/ul>\n<\/li>\n<li>The rules specify the scope and mechanism for Pillar Two&#8217;s so-called Global Anti-Base Erosion (<strong>GloBE<\/strong>) rules.<\/li>\n<li>The new Pillar Two model rules will assist countries to bring the GloBE rules into domestic legislation in 2022. The GloBE rules<strong>:<\/strong>\n<ul>\n<li>Define the MNEs within the scope of the minimum tax;<\/li>\n<li>Set out a mechanism for calculating an MNE\u2019s effective tax rate on a jurisdictional basis; and<\/li>\n<li>Impose the top-up tax on a member of the MNE group in accordance with an agreed rule order.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Significance of Pillar Two rules:<\/strong>\n<ul>\n<li>More than $125 billion in taxing rights were to be redistributed each year from about 100 of the world&#8217;s largest and most profitable MNEs to consumer-centric countries.<\/li>\n<li>This would ensure that large corporations pay their fair share of taxes everywhere they operate and make profits.<\/li>\n<li>While the OECD is seen as a rich-country club, the rules show that it has become increasingly liberal in its approach to non-members such as India<strong>.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2><strong>News Summary:<\/strong><\/h2>\n<ul>\n<li><strong>Concerns regarding Pillar Two rules:<\/strong>\n<ul>\n<li><strong>Pillar 1 a contentious issue among several developing countries.<\/strong>\u00a0It provides that no newly enacted digital services tax (like India\u2019s equalisation levy) will be imposed on any company till the coming into force of the Pillar 1 agreement.\n<ul>\n<li>According to India, the equalisation levy was a temporary solution that could be repealed once Pillar 1 was implemented.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Pillar 2<\/strong>, with a mechanism for tax back by another country if the minimum rate was not adhered to, remains a hiccup in the negotiation.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Significance of the UN tax convention:<\/strong>\n<ul>\n<li>It would overhaul global taxation rules, end global tax abuse by multinational enterprises (MNEs) and the super-rich.<\/li>\n<li>It could result in\u00a0<strong>a larger number of companies<\/strong>\u00a0(rather than just the top 100) coming within the ambit of a fairer customer-centric based profit allocation.<\/li>\n<li>In addition to dealing with tax issues in a digital economy, the convention is also expected to deal with the menace of<strong>\u00a0illicit money flows<\/strong>\u00a0and solutions to overcome the same.<\/li>\n<li>It will now kick off\u00a0<strong>a power struggle between the two institutions<\/strong>\u00a0(UN and OECD) with implications for global and local economies, businesses and people everywhere for decades to come.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>OECD is an intergovernmental organisation that aims to stimulate economic progress and world trade.<\/p>\n","protected":false},"author":5,"featured_media":34509,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-34508","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/34508","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=34508"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/34508\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/34509"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=34508"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=34508"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=34508"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}