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India ratifies OECD's convention to check tax evasion

Date: 03 July 2019 Tags: India & World

India has ratified Multilateral Convention to Implement Tax Treaty Related Measures (MLI) to prevent Base Erosion and Profit Shifting (BEPS). This ratification will pave way for amendments to double taxation avoidance agreements (DTAA) with countries signatories to convention to plug revenue leakages.

Impact: The ratification will modify India's treaties in order to curb revenue loss through treaty abuse and BEPS strategies by ensuring that profits are taxed where substantive economic activities generating profits are carried out and where value is created.

Base Erosion and Profit Shifting (BEPS): It is tax planning strategies resorted to by MNCs to exploit gaps and mismatches in tax rules to artificially shift their profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid

Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS

It was outcome of OECD/G20 Project to tackle Base Erosion and Profit Shifting (BEPS Project). The BEPS Project identified 15 actions to address issue of BEPS in comprehensive manner. India had signed it June 2017.

It enables countries to implement tax treaty related changes to achieve anti-abuse BEPS outcomes through multilateral route without need to bilaterally re-negotiate each such agreement which is burdensome and time consuming. It ensures consistency and certainty in implementation of BEPS Project in multilateral context.

It enables all signatories, inter alia, to meet treaty-related minimum standards that were agreed as part of Final BEPS package, including minimum standard for the prevention of treaty abuse under Action 6.

Applicability: The Convention will operate to modify tax treaties between two or more Parties to Convention. It will not function in same way as an amending protocol to single existing treaty, which will directly amend text of the Covered Tax Agreement. Instead, it will be applied alongside existing tax treaties, modifying their application in order to implement the BEPS measures.

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