The Global Corporate Tax Agreement and Its Impact on India: A Comprehensive Analysis

As the global economy continues to evolve, so too do the complexities of international tax policies. The recent decision by U.S. President Donald Trump to withdraw from the 2021 global corporate tax agreement has sent shockwaves through the international financial landscape. This move, coupled with its implications for India and other nations, underscores the need for a deeper understanding of the agreement’s structure, its potential consequences, and how countries like India might adapt their strategies in response.

In this article, we will explore the background of the 2021 global tax agreement, analyze the implications of the U.S. withdrawal, assess India’s position and concerns within the framework, and consider the broader impacts on international tax policies.

The Background of the 2021 Global Tax Agreement

The 2021 global corporate tax agreement was a landmark moment in international tax policy. Reached under the auspices of the Organisation for Economic Co-operation and Development (OECD), the agreement aimed to address some of the most pressing challenges facing contemporary tax systems in the digital age.

The agreement comprised two main pillars, as outlined by the OECD:

Pillar One: Allocated Taxing Rights

Pillar One focused on reallocating taxing rights to ensure that large multinational enterprises (MNEs), particularly those operating in the digital space, pay taxes in the jurisdictions where they generate revenue. This pillar aimed to counteract profit-shifting and base erosion by MNEs seeking to minimize their tax liabilities in high-tax countries while benefiting from lower-tax environments.

Pillar Two: Global Minimum Tax Rate

Pillar Two introduced a global minimum tax rate of 15%. The idea was that all large companies, regardless of where they operate or how much profit they generate offshore, would be subject to at least a 15% tax. This measure was intended to prevent MNEs from exploiting jurisdictions with low or no taxes to extract value without contributing proportionally to the countries in which they operate.

The agreement’s primary objectives were clear: to reduce tax competition among nations and to ensure that digital giants contributed fairly to the economies in which they operated, regardless of their physical presence.

The U.S. Withdrawal and Its Implications

In January 2025, President Trump effectively withdrew the U.S. from the global corporate minimum tax agreement by declaring it “has no force or effect” within the country. This decision has raised significant concerns among policymakers, analysts, and international observers.

Concerns About the Feasibility of the Framework

The U.S. withdrawal has cast doubt on the viability of the global tax framework without one of its largest and most influential participants. The U.S., as the world’s largest economy, has long been a key player in shaping international tax policies. Without its buy-in, the agreement risks becoming little more than a symbolic gesture.

Impact on Other Nations

The withdrawal could also have broader implications for other nations that had hoped to leverage the agreement to level the playing field and increase tax revenue from large MNEs. If other countries follow suit or find themselves unable to enforce the terms due to the U.S.’s non-compliance, the global effort to address corporate taxation could lose momentum.

India’s Position and Concerns

India has been one of the most vocal supporters of international efforts to impose meaningful taxes on MNEs. The country has long argued that its domestic revenue base is eroded by profit-shifting and base erosion, often facilitated by low-tax jurisdictions.

India’s Support for the Agreement

Initially, India supported the 2021 global tax agreement, viewing it as a potential solution to some of the challenges it faced in collecting taxes from MNEs. The agreement was seen as a way to ensure that multinationals paid their fair share of taxes in countries like India, where they operated substantial portions of their business.

Concerns About Implementation

However, India has also raised concerns about the practicality of implementing the agreement. While the country broadly supported the principles behind Pillar One and Pillar Two, it has expressed doubts about how other nations might interpret and enforce the framework. For instance, questions remain about how jurisdictions will determine which MNEs are subject to Pillar One and whether the global minimum tax rate will be uniformly applied.

Additionally, there have been concerns that the U.S. withdrawal could embolden other countries to adopt more lenient approaches to corporate taxation, undermining the agreement’s intended purpose.

The Impact on India’s Tax Strategies

India’s response to the U.S. withdrawal and the broader uncertainty surrounding the global tax framework is likely to shape its future tax policies. While the country has not yet indicated a shift in its stance, there are signs that it may need to reassess its assumptions about how MNEs operate and pay taxes.

Potential Adjustments to Tax Policies

One possibility is that India might adopt more aggressive measures to ensure compliance with international tax norms. This could include strengthening domestic tax laws or pursuing bilaterally agreed minimum tax rates with other countries.

Another potential adjustment is for India to focus on its own domestic tax base, particularly in key industries like technology and financial services, where MNEs have a significant presence. By increasing scrutiny of these sectors, India might be able to collect more taxes even if the global agreement falters.

The Role of International Collaboration

In the absence of a robust international framework, collaboration between nations will be critical. For example, countries like India may need to work more closely with others to develop their own interpretations of Pillar One and Pillar Two, ensuring that MNEs cannot exploit gaps in the system.

Global Reactions and the Future of International Tax Policy

The U.S. withdrawal has sparked a broader debate about the future of international tax policy. While some argue that the global agreement is still viable without U.S. participation, others believe that it may lose momentum, leaving nations to pursue their own solutions.

The Role of Emerging Economies

Countries like India and other emerging economies will play a key role in shaping the direction of international tax policies in the coming years. These nations have a vested interest in ensuring that MNEs pay their fair share of taxes, regardless of how the global agreement evolves.

The Need for Transparent and Fair Systems

The emphasis on transparency and fairness is likely to remain a central theme in international tax discussions. As technological advancements continue to blur the lines between physical and digital economies, policymakers will need to adapt their frameworks accordingly.

Summary

The 2021 global corporate tax agreement represented a significant step forward in addressing some of the most pressing issues facing contemporary tax systems. However, the U.S. withdrawal has cast doubt on its future viability, raising concerns about implementation and enforcement.

For India, the implications of this uncertainty are particularly acute given its long-standing advocacy for fairer international taxation. While the country has yet to indicate a definitive response, it may need to adapt its tax policies in ways that reflect both the global agreement’s principles and the challenges posed by its absence.

As the world grapples with these issues, collaboration between nations will be essential. The focus must remain on ensuring that MNEs pay their fair share of taxes wherever they operate, regardless of the political or economic
landscape.