The government may have to take a relook at the tax incentives being offered to units in the International Financial Services Centre (IFSC), a new financial hub in Gujarat, in view of Pillar Two of the Base Erosion Profit Sharing framework, according to a Deloitte report.
“MNE groups having operations in the GIFT (Gujarat International Financial Tech) City will need to evaluate the overall tax impact in India, pursuant to the Pillar Two Globe Rules,” the report said.
A group having non-IFSC presence along with a unit in IFSC may be able to benefit from the jurisdictional blending at India level, it said.
It suggested offering incentives in other forms to keep the attractiveness of IFSC intact.
Pillar Two sets out global minimum tax rules aiming to ensure that large MNCs pay a minimum effective rate of tax of 15% on profits in all countries.
The report pointed out that units in IFSC may not have enough employees and assets to avail of the benefits, so these units will need to evaluate the overall tax impact in India, after the Pillar Two Globe Rules.
Conglomerates from the financial services industry that have set up base in the GIFT City are incentivised with tax holiday benefits for a period of 10 out of 15 years, and a lower rate of alternate minimum taxes at 9%, along with surcharge and cess, which brings down the effective tax rate to below 15% .
This means their resident countries can apply top up tax on the income from IFSC.
While the majority of European countries have already announced the Pillar 2 framework, India is expected to announce steps in this direction in its full budget in July.
“The Pillar 2 overhang continues to dog policy makers in India,” said Rohinton Sidhwa, partner – direct tax, Deloitte.
“It’s possible that India could potentially be tempted to look at ways to unilaterally also boost gains from Pillar 2, albeit staying within the overall consensus,” he said.
