TAXATION Order is a creature of myriad social-economic and political forces prevailing in any tax jurisdiction at a particular point of time. As soon as these forces oscillate, the wheel of time moves and so does the taxation regime! In other words, an extant tax order in any tax jurisdiction is an outcome of the prevailing economic and political circumstances. The same bucket of parameters also determine the International Taxation Order! But, the scale grows into earth-size! And it involves economies pursuing a bewildering concoction of economic models! For a few, it may be shambolic and 'blue funk'! For many, it may be akin to 'driving a speedboat in a bathtub'! For a few dozens, it may yield only skin-crawling sensation of penury! And, for a fistful, it may be like sleepwalking into prosperity and rapid tech-enabled all-round development! With such intriguing diversity laced with the glaring dichotomy of rich and poor tax jurisdictions, building consensus for a new International Tax order would always remain a stiff trek to the cliff!

Thankfully, the cliff-trekking came to a transient end last October when the seismic event took place and more than 134 countries agreed to ink where the 'sledgehammer' repeatedly fell (See The Cob(Web) - 784 & 785 for exhaustive details)! The OECD-brokered deal over the two remaining pillars of the globally known charade of lies and fables called BEPS Project was sealed. Though a large chunk of the geographical canvas had agreed to implement the same from 2023 but many EU Members have expressed their hunch to do it before 2024. Meanwhile, the OECD has let out the cat out of its 'bag of rules' riddled with Godzila-sized intrigues and enigma. With the entire world of international taxation experts puzzling out the draft rules, it was incumbent upon TIOL to dedicate one of the technical sessions to these issues, titled - "Global Minimum Tax & Digital Tax - A demystifying peep!" The session was chaired by Mr Pramod Kumar, a popular exponent of nuances of international taxation and the Vice President of the ITAT, Mumbai Bench. And the three key brainboxes to share boffiny views were - Mr Michael Keen, Professor at Tokyo College, Tokyo University and an author of globally popular book - Rebellion, Rascals and Revenue; Ms Shefali Goradia, Partner, Deloitte and Mr Alok Kanti, President & CEO of Bay Inc, Canada.

While rolling the ball for the session, Mr Keen who retired from the Fiscal Division of the IMF before joining the Tokyo College, frankly admitted that he is still in the awe of this astounding achievement for the tax jurisdictions world over. A festering issue of allocation of taxing rights to market jurisdictions was resolved with a few bouts of hair-splitting! But, it was, by all standards, a tectonic event - a clean break from the bellyached international taxation order premised on the principles of Permanent Establishment(PE). He also acknowledged that a few years back, no fiscal economist would even have thought of such an agreement! sacré bleu! However, there are many slices of trouble that have to be dealt with, added he! Some of them could be - as regards the global minimum tax, who is going to get the revenue? How is top-up tax going to work for the source country? How exactly is the low-tax jurisdictions going to cope with? Whether there is going to be a floor rate or the minimum tax rate is to be hiked? How would high-tax countries react to low-tax countries in the new regime? What impact it may have on investment decisions? There are chances that investments may ascend even in a high tax country if post-tax profit is more attractive! Mr Keen posed a bucketful of questions and wondered that finding answers to all these issues would be frigging arduous! One indeed needs to wait and watch how things emerge on the cloudy horizon! He concluded by painting myriad scenarios which a fiscal economist in him tends to conjure up!

The second speaker Ms Shefali also acknowledged that it is no less than a paradigm shift in the international tax order! Considering the pith and essence, the world is now moving away from the classic edifice of PE and building, bricks by bricks, a new bridge of nexus to connect the canyons of diverse markets. The Pillar 1 is all about reallocation of market profits which would encompass all companies, not only the digital companies, above a threshold. As per the Draft Rules, the revenue is now sourced where the eyeballs or users are located. It would get extended to B2B and B2C businesses such as cloud-based services. She observed that the revenue-sourcing rules floated by the OECD are a puzzle (See 'TII Edit'). However, what may lessen the burden on companies for furnishing data is the transactional data of VAT! She also underlined that the Equalisation Levy which is being imposed by many tax jurisdictions is going to be adjusted against the Pillar 1 profit. As regards the Pillar 2, the draft rules are yet to be worded and made public. Once they are floated for public, the companies need to re-evaluate their business models. This would also throw up challenges for laborious re-evaluation to find out whether one is falling short of compliance. She voiced that the GMT (Global Minimum Tax) would also nudge tax holiday jurisdictions to come up with new models. Some of the economies which were known for promoting double non-taxation have begun to unveil new corporate tax structure. Cyprus is now going for 15%. UAE has announced 9% corporate tax rate. These changes in the international tax order would also trigger changes in the domestic rules, she added!

Mr Kanti, on his part, gave the corporate's perspective and wished that the law makers would factor in fall-out of the new tax regime on net value of projects as it may seal the fate of vital projects! He also hoped that the new tax system would pump in steam for stability in the international business eco-system. He said that fiscal tool is vital in the hands of tax jurisdictions as different tax rates create competitive edge and also impact long-term investment decisions. Though taxes are important contributions to society but complexity resulting in higher compliance cost needs to be avoided.

While summing up the Session, the Chair noted that the new world order is trekking away from the arm-length principles. Referring to the Indian source rules, he said that they were perhaps ahead of time but are now being upheld by the new taxation order. He emphasised that the Pillar 1 solution worked out by the OECD is not fair but a timely compromise for market jurisdictions and would evolve into a new system! He noted that rather than updating the definition of PE more in tune with the changing time, the new international tax order has proposed a new definition - Virtual presence vs Physical presence! He also underlined that though the draft rules talk about adjustment of Equalisation Levy but it would need more untying of complex knots. In a nutshell, he observed that the GMT and Digital tax tend to promise high-octane times for lawyers and academics ahead. It would be interesting to watch the journey of their evolution!

And, I do see eye to eye with the Chair as it is going to be the beginning of a new fascinating and oscillating journey for the New International Tax Order which would ferry the present order to a museum of hoary rules and 'gory' principles! It has become a 'week-old fish' in the digital world! It has richly contributed to its own obsolescence! I sincerely hope that a trickle of change thrashed out today would soon turn into a torrent of revenue for resource-starved market jurisdictions! And it is not whining and bellyaching! Let's wait and watch the tide-in-the-making! And also for the new international tax order finding its way to stability in sanity!