Key International tax measures announced in budget 2024

Key aspects international tax measures announced in budget 2024

The international tax measures announced in the union Budget 2024 focus on several important aspects, such as the Equalisation Levy, foreign company taxation, and the Vivad se Vishwas Scheme. These are aimed at simplifying processes, reducing litigation, and encouraging foreign investment. But one key area left unaddressed is the implementation of the Organisation for Economic Co-operation and Development -Global Minimum Tax. while union Budget 2024 introduces several positive international tax reforms, particularly aimed at reducing disputes and attracting foreign investment, the absence of Organisation for Economic Co-operation and Development GMT implementation is a notable gap, leaving room for potential revenue loss and tax complexities in the future.

Following Summary of International Tax Measures in the union Budget 2024:

1. Equalisation Levy:

   • From August 1, 2024, the 2% levy on non-resident e-commerce operators for e-commerce supply or services will no longer apply. This is significant for foreign e-commerce companies, potentially reducing their tax burden in India and aligning with efforts to reduce friction in global digital commerce.

2. Corporate Tax Rate for Foreign Companies:

   • The reduction of the tax rate for foreign companies to 35% is designed to make India a more attractive destination for foreign direct investment. By lowering the tax burden, the government seeks to encourage foreign capital inflow, especially in sectors like manufacturing and technology.

3. Vivad se Vishwas Scheme:

   • This new iteration of the scheme aims to resolve long-pending tax disputes and simplify direct tax compliance. By resolving disputes quickly, it ensures that businesses (including foreign entities) can avoid prolonged litigation and uncertainties in tax liability.

4. Safe Harbour Rules:

   • Expanding the scope of safe harbour rules is another step to reduce litigation, providing more certainty to foreign entities in terms of transfer pricing and tax compliance. This helps ensure that businesses can operate without the constant fear of tax adjustments or disputes, particularly in cross-border transactions.

5. Appeals Threshold:

   • The increase in monetary thresholds for tax appeals—₹60 lakh for Income Tax, ₹2 crore for Tribunals, ₹5 crore for High Courts, and ₹5 crore for the Supreme Court—will help reduce the number of frivolous or low-value appeals, making it easier for foreign companies to navigate the tax system.

6. Transfer Pricing Assessments:

   • Streamlining the transfer pricing assessment procedures will improve clarity and efficiency in tax enforcement. This is particularly important for multinational corporations (MNCs) engaging in cross-border transactions and transfer pricing agreements.

7. Interest Deduction for IFSCs:

   • By exempting International Financial Services Centres (IFSCs) from Section 94B (which limits interest deductions), the government encourages investment in IFSCs, making them competitive global financial hubs.

Unaddressed: OECD Global Minimum Tax (GMT) Implementation

The union Budget 2024 notably does not address the OECD’s Global Minimum Tax (Pillar Two of the Base Erosion and Profit Shifting—BEPS—framework), which sets a 15% minimum tax rate on MNCs globally. The absence of a clear implementation roadmap for this tax in India is a gap, considering that many countries, particularly developed ones, are already aligning with the OECD’s guidelines. What is left to be addressed? The budget did not address the implementation of the Organisation for Economic Co-operation and Development (OECD’s) Global Minimum Tax in India. The GMT is crucial for preventing tax avoidance by large MNCs who shift profits to low-tax jurisdictions.

Implications of Leaving Out OECD’s Global Minimum Tax:

• Risk of Non-Alignment: Not adopting the Global Minimum Tax could result in India lagging in international tax norms, creating uncertainties for MNCs operating in or considering India. If global companies are taxed less in India, their home countries might impose additional taxes to make up the difference, which could deter investment.
• Base Erosion and Profit Shifting: Without Global Minimum Tax, India may face risks of profit shifting, where MNCs reroute income to jurisdictions with lower tax rates, leading to potential revenue loss.
• Competitiveness: As other countries adopt the Global Minimum Tax, India’s non-participation might make it a less attractive jurisdiction for MNCs if global tax rules create friction or added tax costs elsewhere.

Areas for Future Consideration in upcoming union Budget:

• GMT Implementation: India will need to eventually implement the OECD Global Minimum Tax to align with global standards and ensure MNCs are taxed equitably.
• Digital Economy Taxation: With the phased removal of the Equalisation Levy, the budget did not specify any replacement tax regime for the digital economy, which remains a growing concern globally.
• Tax Treaty Reforms: Continued modernization of tax treaties to avoid double taxation and streamline international taxation could be explored in future budgets.