OECD framework to help FinMin check tax avoidance by MNCs

Govt is studying suggestions on checking instances of double non-taxation and 'treaty shopping'

The finance ministry is proceeding with moves to curb legal tax avoidance by multinational companies (MNCs).

Revenue considerations apart, it has been buoyed by the recommendation that developing countries do so, from the Paris-based Organisation of Economic Co-operation and Development (OECD).

The latter body has made suggestions on an 'action plan' in this regard, issued on Monday, on what is termed base erosion and profit shifting (BEPS) between countries. It had formulated this at the request of G-20 countries, a mix of developed and developing ones.

The government is studying suggestions on checking instances of double non-taxation and 'treaty shopping', the term for the practise of structuring a multinational business to take advantage of more favourable taxes in certain jurisdictions. It will ensure, say officials, that the proposed General Anti-Avoidance Rule (GAAR, on taxes), expected to come into force from April 2017, complements the BEPS action plan of OECD. GAAR was deferred by two years in the 2015-16 Union Budget.

Provisions not part of GAAR such as 'mandatory reporting norms' might be introduced. "We will soon take a view on (incorporating) that in domestic taxation law," said an official.

The BEPS plan is to be discussed at the G-20 finance ministers' meeting in Lima, Peru, which opened on Thursday. Finance Minister Arun Jaitley is attending.

"We are happy that the BEPS plan has taken into account concerns on international taxation raised by India. We are studying each of the recommendations and how we can incorporate those in our domestic tax laws. While some will require amendment in the Income Tax Act, we will issue circulars or guidance notes for others," said an official.

Re-negotiation of tax treaties is likely only after December 2016, when a multilateral instrument to modify bilateral tax treaties is to be signed by about 90 countries. The instrument will provide a standard framework for bilateral tax treaties, to check abuse of double taxation avoidance treaties by MNCs.

However, getting a consensus on the multilateral instrument will be a colossal task, as it will require all 90 countries to agree to all provisions of the instrument, the negotiations for which will commence early next year.
'TREATY SHOPPING'

• The government is studying suggestions on checking instances of double non-taxation and 'treaty shopping'
• It will ensure that the proposed General Anti-Avoidance Rule (GAAR, on taxes), expected to come into force from April 2017, complements the BEPS action plan of OECD