BEPS 2.0 (Base Erosion and Profit Shifting)

BEPS 2.0 (Base Erosion and Profit Shifting) is an international taxation framework developed by the OECD and G20 to reform multilateral tax rules for the digital economy. It reallocates corporate taxing rights to market jurisdictions under Pillar One and establishes a 15% global minimum effective corporate tax rate under Pillar Two.

Building on the 2015 BEPS project, BEPS 2.0 (Base Erosion and Profit Shifting) addresses challenges where digital companies earn profits in markets without a physical presence. Over 140 countries in the OECD and G20 Inclusive Framework agreed to this two-pillar framework to curb profit shifting and end corporate tax competition.

How BEPS 2.0 (Base Erosion and Profit Shifting) Restructures Global Tax

The BEPS 2.0 project departs from traditional international tax doctrines that rely purely on physical nexus and arm's length transfer pricing. It introduces a comprehensive architecture divided into two distinct pillars.

Pillar One: Market Taxing Rights and Distribution Baselines

Pillar One shifts taxing rights toward countries where customers and users are located, regardless of physical presence:

• Amount A: Reallocates 25% of residual profits (profits above a 10% pre-tax margin) to market jurisdictions for multinational enterprise (MNE) groups with global turnover exceeding 20 billion euros.
• Amount B: Standardises and simplifies transfer pricing rules for routine marketing and baseline wholesale distribution, reducing disputes across tax administrations.

Pillar Two: The 15% Global Minimum Tax (GloBE)

Pillar Two enforces a 15% minimum effective tax rate (ETR) on MNE groups with consolidated annual revenues of at least 750 million euros (approximately 6,750 crore Indian rupees). If a group's ETR in any jurisdiction falls below 15%, a top-up tax applies to collect the difference. Pillar Two also includes the Subject to Tax Rule (STTR), allowing developing countries to impose a 9% minimum tax on certain cross-border intragroup payments.

The diagram below outlines the core architecture and key mechanisms of the BEPS 2.0 framework.

flowchart TD
    A["BEPS 2.0 Framework"] --> B["Pillar One: Taxing Rights"]
    A --> C["Pillar Two: Minimum Tax"]
    B --> D["Amount A: Profit Reallocation"]
    B --> E["Amount B: Distribution Baseline"]
    C --> F["15 Percent Minimum ETR"]
    C --> G["STTR: 9 Percent Source Rule"]
    F --> H["QDMTT: Source Collection"]
    F --> I["IIR: Parent Top-Up"]
    F --> J["UTPR: Backstop Top-Up"]

Core Mechanics and Rule Order Under Pillar Two

To prevent double taxation, the Global Anti-Base Erosion (GloBE) rules follow a strict priority order to collect top-up taxes:

• Qualified Domestic Minimum Top-Up Tax (QDMTT): The source country has first priority to tax low-taxed domestic profits up to 15%.
• Income Inclusion Rule (IIR): If the source jurisdiction lacks a QDMTT, the parent entity's country collects top-up tax on under-taxed foreign subsidiaries.
• Under-Taxed Profits Rule (UTPR): If the parent jurisdiction has not implemented an IIR, other operating entities collect the top-up tax by denying local tax deductions.

The table below outlines the core differences and priorities among these GloBE mechanisms:

BEPS 2.0 Impact on Indian Businesses and Tax Compliance

India is an active member of the Inclusive Framework. While India's base corporate tax under Section 115BAA is 22% (reaching an effective 25.17% with surcharge and cess), GloBE ETR is calculated using financial accounting net income adjusted under Pillar Two rules, not domestic taxable income.

Tax incentives such as special economic zone (SEZ) deductions under Section 10AA or concessional rates can drop an Indian entity's GloBE ETR below 15%. Without an Indian QDMTT, foreign parent entities must pay top-up tax abroad under the IIR, blunting the benefit of local incentives.

For large outbound Indian multinationals exceeding 750 million euros in revenue, Pillar Two requires immediate reporting. Foreign subsidiaries in low-tax jurisdictions face QDMTT or UTPR liabilities in countries where GloBE is active.

On the accounting front, the Ministry of Corporate Affairs (MCA) and the Institute of Chartered Accountants of India (ICAI) amended Ind AS 12 (Income Taxes). This amendment provides a mandatory temporary exception from recognizing deferred tax assets and liabilities arising from Pillar Two, while mandating disclosures on potential tax exposure that affect the P&L statement.

Concurrently, to align with Pillar One commitments against unilateral measures, India withdrew its 2% Equalisation Levy on foreign e-commerce operators via the Finance (No. 2) Act, 2024, managed by the Income Tax Department, followed by the phase-out of the 6% advertising levy.

Operational Readiness for Finance and Compliance Leaders

Complying with BEPS 2.0 requires robust accounting and data infrastructure across group entities:

• Data Aggregation: GloBE Information Returns demand over a hundred data points per constituent entity, including eligible payroll costs from centralized employee database management systems and tangible asset values needed for the Substance-Based Income Exclusion (SBIE).
• GAAP Alignment: Reconciling local statutory accounts with group consolidated reporting standards is essential to calculate constituent entity income accurately.
• Transfer Pricing Controls: Pillar One Amount B demands standardized documentation and testing for routine wholesale distributors.

At MYND, we help organizations manage multi-jurisdiction compliance through integrated record to report outsourcing and comprehensive compliance management services. Supporting clients with a 99% compliance achievement rate and $20B+ throughput managed, our teams establish structured reporting workflows. Implementing a shared services center (SSC) or utilizing finance and accounts outsourcing provides the clean, centralized financial records required for GloBE filings.

Preparing your enterprise for BEPS 2.0 (Base Erosion and Profit Shifting) requires aligning local accounting books with global tax rules, preventing unexpected top-up liabilities across international operations.

Frequently Asked Questions

What is the difference between BEPS 1.0 and BEPS 2.0?

BEPS 1.0 targeted tax avoidance through tighter transfer pricing rules and treaty anti-abuse measures within traditional physical nexus concepts. BEPS 2.0 establishes new digital taxing rights under Pillar One and a binding 15% global minimum effective tax rate under Pillar Two.

Does BEPS 2.0 apply to all companies in India?

No. Pillar Two applies only to multinational groups with annual consolidated revenues of at least 750 million euros (around 6,750 crore Indian rupees). Pillar One Amount A applies to groups with revenues exceeding 20 billion euros and profitability above 10%.

How does Pillar Two affect Indian SEZ units?

If tax holidays under Section 10AA reduce an Indian unit's effective tax rate below 15% on a GloBE basis, top-up tax becomes payable. If India has not enacted a QDMTT, the foreign parent's home jurisdiction collects this tax via the IIR, offsetting the domestic holiday benefit.

What is the mandatory temporary exception under Ind AS 12?

The ICAI and Ministry of Corporate Affairs amended Ind AS 12 to exempt companies from recognizing and disclosing deferred tax assets and liabilities related to Pillar Two taxes, while requiring qualitative and quantitative disclosures in financial statement notes.