India ratifies OECD's convention to check tax evasion

India has ratified the multilateral convention to implement OECD's project on checking tax evasion, and the provisions enshrined in the framework will come into effect from fiscal 2020-21 for bilateral tax treaties, the finance ministry said.

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) was signed by then Finance Minister Arun Jaitley in Paris on June 7, 2017.

The Cabinet last month approved ratification of the convention, which will modify India's treaties in order to curb 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.

The finance ministry in a statement said on June 25, 2019, India has deposited the instrument of ratification to OECD, Paris, along with its final position in terms of covered tax agreements (CTAs), under the multilateral convention.

As a result of this, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) "will enter into force for India on October 1, 2019, and its provisions will have effect on India's DTAAs from FY 2020-21 onwards," a finance ministry statement said.

Out of 93 CTAs notified by India, 22 countries have already ratified the MLI as on date and the Double Taxation Avoidance Agreement (DTAA) with these countries will be modified by MLI.

For the remaining CTAs, effect of MLI will take place as and when these countries ratify the MLI, it added.

"The date of entry into force of the MLI for India is October 1, 2019. In respect of the 22 treaty partners of India who have deposited the Instrument of Ratification on or before June 30, 2019, entry into effect for India under MLI with respect to the DTAA shall be from financial year 2020-21 onwards," the ministry said.

The multilateral convention is an outcome of the OECD/G20 project to tackle base erosion and profit shifting, which is resorted to by multinational corporations through tax planning strategies by exploiting gaps and mismatches in tax rules.

It helps them artificially shift profits to low or no-tax locations, resulting in little or no overall corporate tax being paid.

After this convention, 90 countries have now implemented the automatic exchange of financial account and tax information.

The convention enables all signatories to meet treaty-related minimum standards that were agreed as part of the BEPS package.