Global Minimum Tax – ‘Trumpnado’ Comes As India Braces To Unveil New Rules  

The Union Budget 2025 is scheduled to be unveiled on Saturday. Taxpayers, under all rubrics, have high expectations from the Union Finance Minister, Nirmala Sitharaman. Like others, multi-national enterprises also have a fair bout of expectations. One of them is the rules entailed in implementing Pillar 2 of the famed Base Erosion and Profit Shifting Project of the Organisation for Economic Co-operation and Development. 

Policymakers have been bracing for such a moment for long and are expected to roll in such rules as part of the Finance Bill 2025. These rules are to facilitate the implementation of the global minimum tax of 15%. However, what casts a dark shadow over it is the latest ‘Trumpnado’, whereby the United States has announced that the global minimum tax deal will have no force or effect within the country.  

In simple words, America has retreated from the position taken by the former United States Treasury Secretary, Janet Yellen. Such a decision by the Trump administration has upended the pathway taken by dozens of tax jurisdictions. As many as 40 countries have already amended their domestic laws to implement the OECD deal. A few dozen are fully geared up to do the same. India itself has quarantined its 2% equalisation levy and is fully prepared to implement the Global Anti-Base Erosion Rules.  

Pillar 2 essentially is a mechanism to ensure that multi-national enterprises pay a minimum tax of a certain percentage of their income in all the countries in which they operate. This is supposed to end the race to the bottom in terms of corporate tax rates imposed by different countries to attract investments in their jurisdictions, particularly the surviving tax havens. Developing countries were enticed to fall in line with the argument that since they have to offer a lot of tax incentives to multi-national enterprises to lure investments, the adoption of a minimum tax would help them resist such demands from multi-national enterprises.  

The key driver for multi-national enterprises to choose a particular country for their permanent establishment is the corporate tax rate. Tax jurisdictions like Ireland, Luxembourg, and even the Netherlands have witnessed an avalanche of foreign corporations because they offer tax shelters for their profits. Ergo, the global minimum tax is a ‘top-up’ tax between the jurisdiction’s corporate tax rate and the benchmark rate of 15%.  

A concession in the form of a treaty-based Subject to Tax Rule allows source jurisdictions to “tax back” where certain defined categories of cross-border intra-group covered income are subject to nominal corporate income tax rates below 9%. Thus, the global minimum tax rules together with the Subject to Tax Rule constitute the whole of Pillar 2. After about 137 countries endorsed the OECD deal in 2021, the OECD Secretariat released a barrage of documents, each more complicated than the last, and the current situation is that the global minimum tax has become a reality, with dozens of countries implementing the global treaty.  

In this backdrop, the Trumpian decision to back off from the deal may prompt many Global South and even East European tax jurisdictions to infringe the global treaty – and if they do so, they cannot be faulted! 

It remains to be seen what springs out of the Finance Bill 2025 and how the Indian taxmen will swim with the violent winds of geopolitical tumults.