India expedites easing tax norms for multinationals

OECD countries and the Indian government believe that Base Erosion and Profit Shifting (BEPS) is going to change the way business is done in the country

By  Sai Nikesh D

The Finance Ministry is prioritising implementation of measures like Base Erosion and Profit Shifting (BEPS) mechanism in order to ease taxation norms for multinational companies.

“Industry should start working towards BEPS readily, in order to keep up with the upcoming changes. The objective of the BEPS project is to prevent strategies to shift profits and review the whole system of international taxation. It is aimed at domestic resource mobilisation,” said Akhilesh Ranjan, Joint Secretary at the Central Board of Direct Taxation (CBDT).

According to experts, the implementation of BEPS will keep a check on multinationals evading tax liabilities through transfer pricing.

“BEPS project implementation would lead to higher tax payment in source countries like India, and multinationals will need to accept this reality. Profits will now be taxed where they arise, and not where were being artificially parked (in tax havens). There will be issues like grant of credit for taxes paid in source country by the residence country, and these are challenging times for corporates,” says Nilesh Kapadia, Chartered Accountant and partner at N M K & Co. told.

It is likely that few will take the BEPS implementation as continuation of adversarial tax regime, but now each country is trying to protect its tax base, and India is not alone in this attempt.

Perhaps the long term outcome of each country to implement this would be a sort of formulatory apportionment agreed to by all countries. If and when this happens, multinationals will continue to face tax challenges across the globe, he noted.

The Finance Ministry official further informed that international think-tank OECD (Organisation for Economic Co-operation and Development) and the Indian government believe that BEPS is going to change the way business is done and this is the right time to look closely at the BEPS reports and structure transactions accordingly.

Ranjan was speaking at the ‘Conference on BEPS: Big Change in Global Taxation – Impact on India’, organised by the Confederation of Indian Industry (CII) in Delhi on Friday.

The government official further said that the G20 has been endorsing the BEPS project and OECD has been entrusted with the mandate to establish an inclusive framework to involve countries other than the OECD/ G20 in this project.

On the part of India, the Central government is taking initiatives like setting up of internal groups to “prioritise measures that need to be implemented now and for the later period” and welcoming industry suggestions “for a consistent and sustained implementation of BEPS in a unified and timely manner”, added Ranjan.

Meanwhile, Neeru Ahuja, Chairperson, CII Sub Group on BEPS, termed the project as “extremely important and relevant for India”.

She exuded confidence that Indian industry would welcome the initiative owing to the level of transparency and predictability the BEPS project would provide to the existing tax regime, besides paving way for the alignment of Indian tax laws with global best practices.

However, according to Kapadia, the pace of implementation will depend on the actions taken by more than one government and collaborations between tax authorities of different countries. “It remains to be seen how and how many governments chose to collaborate with India,” he added.

This article was published in The Dollar Business on November 21, 2015

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