—Guide
Pillar Two Global Minimum Tax Explained for Indian Subsidiaries of Multinationals
What the 15% global minimum tax means for Indian subsidiaries of large multinational groups, how top-up tax works, and what data groups need from India.
The global minimum tax, known as Pillar Two, is reshaping how large multinational groups think about tax in every country where they operate. Indian subsidiaries are affected even when they pay normal Indian tax rates. This guide explains the basics.
What Pillar Two Is
Part of the OECD/G20 project on base erosion and profit shifting, Pillar Two sets a minimum effective tax rate of 15% for multinational groups with consolidated revenue of €750 million or more. Where a group's profits in a country are taxed below 15%, a top-up tax can be collected.
How the Rules Fit Together
- Qualified Domestic Minimum Top-up Tax (QDMTT): the low-taxed country collects the top-up tax itself.
- Income Inclusion Rule (IIR): the parent's country collects top-up tax on low-taxed subsidiaries.
- Undertaxed Profits Rule (UTPR): a backstop allocating top-up tax to other group countries.
Effective Tax Rate
The GloBE effective tax rate is computed for each country, using adjusted financial accounts and covered taxes, including deferred tax. It can differ significantly from the headline tax rate.
Why Indian Entities Can Be Affected
India's headline corporate tax rates are above 15%. But the GloBE ETR for Indian operations can fall below 15% where:
- Units enjoy tax holidays, such as in SEZs.
- Other incentives reduce taxable income.
- Accounting and tax differences affect the calculation.
A substance-based income exclusion, based on payroll and tangible assets, reduces the profit subject to top-up tax.
India's Position
Many countries have implemented Pillar Two rules. India's own approach has been evolving; Indian entities of in-scope groups are affected through rules applied by their parent's country or others regardless. Check the current position when planning.
What Groups Need From India
- Financial data adjusted to the group's accounting standard.
- Current and deferred tax data.
- Details of incentives and tax holidays.
- Payroll and tangible asset data.
Getting Help
Think Filing helps Indian subsidiaries of multinational groups assess Pillar Two effects and produce the data their groups need.