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Cabinet approves signing of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting by India

Delhi 

approves signing of the Multilateral Convention to Implement Treaty Related Measures to Prevent Base Erosion and Profit Shifting by

The Union chaired by the Prime Minister Shri Narendra Modi has given its approval for the Multilateral Convention to Implement Treaty Related Measures to Prevent Base Erosion and Profit Shifting. The Convention is an outcome of the OECD / G20 BEPS Project to tackle base erosion and profit shifting through planning strategies that exploit gaps and mismatches in rules to artificially shift profits to low or no-locations where there is little or no economic activity, resulting in little or no overall corporate being paid.

The Final BEPS Project identified 15 actions to address BEPS in a comprehensive manner. Implementation of the Final BEPS Package requires changes to more than 3000 bilateral treaties which will be burdensome and time consuming. In view of the same, the Convention was conceived as a Multilateral instrument which would swiftly modify all covered bilateral treaties (Covered Agreements / CTA) to implement BEPS measures. For this purpose, formation of an Ad-hoc Group for the development of such multilateral instrument was endorsed by the G20 Finance Ministers and Central Bank Governors in February 2015.

Background:

was part of the Ad Hoc Group of more than 100 countries and jurisdictions from G20, OECD, BEPS associates and other interested countries, which worked on an equal footing on the finalization of the text of the Multilateral Convention, starting May 2015. The text of the Convention and the accompanying Explanatory Statement was adopted by the Ad hoc Group on 24 November 2016.

The Convention implements two minimum standards relating to prevention of treaty abuse and dispute resolution through Mutual Agreement Procedure. The Convention will not function in the same way as an Amending Protocol to a single existing treaty, which would directly amend the text of the Covered Agreements. Instead, it will be applied alongside existing treaties, modifying their application in order to implement the BEPS measures. The Convention ensures consistency and certainty in the implementation of the BEPS Project in a multilateral context. The Convention also provides flexibility to exclude a specific treaty and to opt out of provisions or parts of provisions through making of reservations.

The Convention has been opened for signature as on 31st December 2016 and a first joint signing ceremony is scheduled to be held in Paris on 7th June, 2017. Signature is the first step in the process of expressing consent to be bound by the Convention, which will become binding only upon ratification. A list of Covered Agreements as well as a list of reservations and options chosen by a country are required to be made at the time of signature or when depositing the instrument of ratification.

approval has been sought for the signing of the Convention by It is also proposed to make a provisional list of Covered Agreements and a provisional list of reservations at the time of signature in June, 2017. Final lists for both will be submitted by at the time of submission of instrument of ratification.

Signing of the Multilateral Convention will enable the application of BEPS outcomes through modification of existing treaties of in a swift manner. It is also in India's interest to ensure that all its treaty partners adopt the BEPS anti-abuse outcomes. Signing of the Convention will enable curbing of revenue loss through treaty abuse and base erosion and profit shifting strategies by ensuring that profits are taxed where substantive economic activities generating the profits are carried out and where value is created.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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