India's Tax Strategy in Light of Trump's Withdrawal from Global Tax Deal

On January 21, 2025, US President Donald Trump announced that the 15% minimum global corporate tax deal, part of the OECD's Pillar 2 framework, has "no force or effect" in the United States, effectively withdrawing from the agreement signed by around 140 countries in 2021. This decision has raised concerns in India, which has not yet implemented the Pillar 2 rules aimed at establishing a global minimum tax for multinational enterprises (MNEs) with a turnover exceeding 750 million euros. While around 50 countries, primarily in Europe, have adopted these rules, India's effective corporate tax rate remains at 25.17% [44b96219].

The implications of Trump's withdrawal are significant for the global tax landscape. Tax experts suggest that while this move will have a monumental impact on international tax policy, India may not be significantly affected from a tax collection standpoint, as it has yet to adopt the Pillar 2 framework. The Indian government has been cautious about the evolving global tax agreements, particularly in light of its own digital tax policies, including the 2% equalisation levy on e-commerce services, which has been extended until June 30, 2024, in agreement with the United States [4565e687].

India's Finance Ministry has emphasized the need for close communication with the US to ensure a common understanding of commitments related to digital taxation. The extension of the equalisation levy reflects India's ongoing efforts to assert its taxing rights over digital businesses that operate within its jurisdiction without a physical presence. However, the recent developments surrounding the Pillar 2 framework may complicate India's position as it navigates its tax policies in a rapidly changing global environment.

As countries around the world grapple with the challenges of taxing digital services and ensuring that multinational tech giants pay their fair share of taxes, India's stance remains pivotal. The withdrawal of the US from the Pillar 2 agreement could shift the dynamics of international tax negotiations, prompting India to reassess its strategies in light of these changes [44b96219].