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Cabinet approves of multilateral convention to prevent BEPS

IANS  |  New Delhi 

The Union cabinet on Wednesday approved signing of a multilateral convention to implement measures to prevent shifting of profits by companies to low-nations to avoid paying taxes here.

The approval came at a meeting of the Cabinet chaired by Prime Minister Narendra Modi, Power Minister Piyush Goyal said, asserting that the multilateral convention will plug loopholes in existing laws under which companies show artificial shifting of profit to countries where is low.

"The Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday gave its approval for the Multilateral Convention to implement treaty-related measures to prevent base erosion and profit shifting," the Finance Ministry said here in a statement.

"The multilateral convention will plug loopholes of base erosion and profit sharing. People try to artificially show shifting of profit to countries where is low, economic activity is low. This loophole will be plugged now," Union Power Minister Piyush Goyal told reporters, briefing them about the cabinet decisions.

The convention is an outcome of the Organisation for Economic Cooperation and Development (OECD)/G20 Base Erosion and Profit Shifting (BEPS) project.

The convention will 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 statement said.

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 3,000 bilateral treaties which will be burdensome and time consuming.

In view of this, the convention was conceived as a multilateral instrument which would swiftly modify all covered bilateral treaties 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.

The convention implements two minimum standards related 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 statement said.



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First Published: Wed, May 17 2017. 18:34 IST