Global base erosion rules likely by end-2015

Under the new global reporting framework on transfer pricing from the OECD, the way assessing officers select transactions to see if those were done at arm's length pricing will undergo a change

The Union finance ministry said global base erosion and profit shifting (BEPS) rules, determining how multinational corporations (MNCs) in different jurisdictions pay their taxes on cross-border transactions, are likely to be finalised by December 2015.

“Work on BEPS is moving very fast. If things go on track, I think by December 2015 one would end up with a set of rules, set of principles which will have acceptance all over the world,” said A Ranjan, joint secretary, on Friday at an event organised by the Confederation of Indian Industry.

He said the issue was being deliberated upon at the G20 group of countries' meetings and some forward movement was expected at the coming one at Brisbane.

Under the new global reporting framework on transfer pricing from the Organisation for Economic Co-operation and Development (OECD), the way assessing officers select transactions to see if those were done at arm’s length pricing will undergo a change.

Under this arrangement, India’s income tax department will get access to sensitive operational details of how every MNC operating in India conducts its business in other markets. It requires country by country reporting of all relevant business details of an MNC to tax authorities in every country it operates in. This information is used for assessing the risk of tax revenue loss.

“Businesses should gear up, prepare themselves for the changes in tax legislation. The government is equally open to consider the views of industry,” Ranjan said. “We must understand where the world is moving, and not just India, the rules are important for multi-jurisdictional transactions of both domestic and international companies. It consists of a set of rules that would be acceptable worldwide.”

The G20 in 2013 had unanimously agreed to a 15-point plan on BEPS, since MNCs tend to shift profits to low tax jurisdictions. This results in loss of revenue to the high tax jurisdiction.

The conference echoed the growing voices of MNCs and Indian companies alike for a stable, certain and less litigious tax environment. And, to ensure investors in the Indian economy were well positioned to plan their investments and estimate the tax outcomes in a reasonable and consistent manner.

“The OECD and G20 countries are focused on solving the BEPS issue in a structured and timely manner. This is evident from the fact that they have been able to align more than 40 countries across the world for this impressive project. It’s just a matter of time before their recommendations are adopted by the respective countries in their tax policies and practices. It is the right time for Indian industry to understand BEPS and its implications and equip itself for these global tax changes,” said a Deloitte spokesperson.

An EY spokesperson suggested there should be a clear distinction made between unreported income escaping tax and the reported income under business arrangements, where there are two opposing views on taxation. While there can be no doubt about the need to monitor the former category, there is a need for sensible and balanced implementation of BEPS principles on the latter category.