BEPS Pillar Two — the OECD's Global Minimum Tax framework — is no longer a geopolitical thought experiment. As of January 1, 2024, the GloBE (Global Anti-Base Erosion) Model Rules have been enacted into domestic law by over 35 jurisdictions, including all EU member states, the UK, South Korea, Japan, and several key Asian financial hubs. India's multinationals are caught in these rules as subsidiaries even before India adopts them domestically.
The framework is elegantly simple in concept: any Multinational Enterprise (MNE) with consolidated global revenues exceeding EUR 750 million (approximately ₹6,800 crore) must pay a minimum effective tax rate of 15% in every jurisdiction it operates in. If a jurisdiction's effective rate falls below 15%, the shortfall — called a "Top-Up Tax" — is collected either by the parent jurisdiction (Income Inclusion Rule — IIR) or, as a backstop, by the source jurisdiction itself (Undertaxed Profits Rule — UTPR).
OECD GloBE Model Rules — Key Threshold
The GloBE rules apply to MNE Groups that have annual revenue of EUR 750 million or more in the Consolidated Financial Statements of the Ultimate Parent Entity in at least 2 of the 4 preceding fiscal years.
Statutory Reference
For an Indian subsidiary of a foreign MNE, the immediate concern is this: if your Indian operations have an Effective Tax Rate (ETR) below 15% — which can happen when you are in an SEZ, have substantial accelerated depreciation, profit-linked deductions under Section 80IC/80IB, or are in a tax holiday period — the parent's jurisdiction may charge the shortfall as a Top-Up Tax at its end. The Indian subsidiary doesn't directly pay more, but the group's consolidated tax cost increases. Decision-making on Indian expansion, tax holiday use, and transfer prices will all be affected.
India's nominal corporate tax rate of 22% (domestic companies) and 25.17% (effective with surcharge/cess) sits comfortably above the 15% floor. But effective rates, after deductions, can fall sharply — and those exceptions are precisely what Pillar Two is designed to eliminate at the consolidated group level.
— Sami Tax International Advisory, 2024
Impact Assessment: Indian Subsidiaries
IT/ITeS in SEZ (Tax Holiday)
ETR during holiday period can drop to 0-5%. Significant top-up exposure for parent. Decisions on SEZ expansion require GloBE modelling.
Manufacturing with Sec. 80IC / 115BAB
15% rate under 115BAB (new manufacturing regime) meets the GloBE floor nominally, but complex allocation rules (e.g. substance-based income exclusions) may still create ETR surprises.
Financial Services / IFSC Entities
GIFT City IFSC entities attract very low effective taxation. GloBE top-up risk is high; detailed QDMTT modelling by the Indian government (via Finance Act 2024) is expected.
India has been strategically non-committal on domestic Pillar Two legislation. Unlike the EU — which mandated GloBE implementation as an EU Directive — India has neither enacted the IIR, UTPR, nor a full Qualified Domestic Minimum Top-Up Tax (QDMTT). This inaction is partly deliberate: as long as India doesn't enact a QDMTT, the top-up tax on under-taxed Indian profits flows to the parent's jurisdiction. The Indian government is weighing whether to enact a QDMTT to "capture" this revenue domestically.
The Finance Ministry's approach is calibrated — neither rushing to adopt GloBE nor publicly opposing it. The revenue from a QDMTT estimated at ₹12,000–18,000 crore annually is a compelling argument for adoption in the upcoming fiscal years.
— Sami Tax Policy Desk, Q1 2024
Pillar Two Global Implementation Timeline
OECD/G20 inclusive framework reaches political agreement on 15% global minimum tax.
EU adopts Pillar Two Directive (Council Directive 2022/2523/EU) — member states must implement by Dec 2023.
IIR takes effect in UK, EU, Japan, South Korea, Australia, and 30+ others. UTPR effective Jan 2025 in most jurisdictions.
Indian subsidiaries of EUR 750M+ groups face indirect exposure via parent IIR collections. Indian QDMTT decision awaited.
India likely introduces QDMTT via Finance Act 2025. Entities with low ETRs (SEZ, 80IC) should begin modelling now.
Structural Readiness Actions
- If your group revenue exceeds EUR 750 million, initiate a GloBE Effective Tax Rate calculation for your Indian entities immediately.
- Identify all low-ETR structures (SEZs, tax holidays, accelerated depreciation regimes) and model the top-up exposure.
- Coordinate with the parent's Pillar Two workstream to ensure Indian data feeds into the Constituent Entity reporting.
- Begin building the jurisdictional data infrastructure required for GloBE information returns — these filing obligations are now live in some jurisdictions and imminent in others.
- Do not assume the Indian nominal rate provides protection — the GloBE effective rate calculation follows its own accounting conventions.