Biden’s plan for MNCs may hit India’s tax regime

The Biden administration’s plan to slap additional levies on major multinationals is set to hit India’s new tax regime.Multiple changes were introduced in the tax mechanisms in 2019 to attract fresh investments in the manufacturing sector.The Biden government is looking to introduce a new regime whereby global profits of multinationals, including US tech giants, will face domestic levies if they aren’t paying a certain percentage of taxes anywhere in the world.This would essentially mean that any American company that doesn’t pay at least 28 per cent tax on their profits in any country, will face additional levies in the US.This is set to come in conflict with India’s tax regime announced in 2019. It offered a 15 per cent tax rate to any company that sets up a new manufacturing facility in India.A key point to note will be how the additional levies will be calculated, according to tax experts.“While the normal corporate tax rate in India is not low, this could impact any US MNC if its Indian subsidiary is availing India’s 15 per cent tax regime (available for new manufacturing companies). Also, the larger question will be whether these companies will get the credit for Indian taxes even if they end up paying under SHIELD (Stopping Harmful Inversions and Ending Low-tax Development) in the US or not,” said Ajay Rotti, Partner, Dhruva Advisors.Some of the largest US companies have either set up new manufacturing facilities in India, or are looking to do so, to avail the lower tax regime, say tax experts.82023705The larger question would be how the US levy would apply.Will companies have to pay the difference (between 28 per cent and 15 per cent) or the US levy (28 per cent) will be over and above Indian tax rate?India slashed corporate tax rates to 22 per cent from 30 per cent for existing companies and to 15 per cent from 25 per cent for new manufacturing companies in 2019.Companies could opt for the higher tax rates, or the new ones where they, however, will have to give up other tax incentives and benefits. The latest rate for new manufacturing companies is one of the lowest in the world, say tax experts.This also comes at a time when the US and India are already at loggerheads over the latter’s digital taxation on companies including Google and Facebook.ET on April 2 reported that New Delhi was set to approach the United States Trade Representative (USTR) with a request to drop the proposed ‘retaliatory’ taxes, or tariffs, applicable to shipments of some Indian products to the US.USTR has proposed a retaliatory trade action — of up to 25 per cent tariffs on basmati rice, sea foods and gold — against India for imposing equalisation levy on certain American companies.The US has objected to India unilaterally slapping an equalisation levy of 2 per cent on digital transactions of multinationals that are outside the ambit of tax treaties.The US's proposal for global minimum tax is aimed at creative tax structures of some of the multinationals. Some of the largest US companies have created structures in a way that they do not pay domestic taxes on global profits.Under the Donald Trump regime, the US had walked out of OECD’s Base Erosion and Profit Shifting (BEPS) negotiations. The current US government is looking to join the BEPS programme.This also comes at a time when countries including India, France, Italy, Spain and Italy have been levying additional tariffs on US tech giants in their own way.“The proposals contained in the Made in America tax plan include introduction of a global minimum tax rate for US multinationals. President's plan includes the introduction of SHIELD which would deny US tax deductions for payments made to related parties in tax jurisdiction with a rate lower than agreed rate,” said Rotti.

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