Base erosion and profit shifting Current Affairs - 2019
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Both India and the US will sign an agreement to facilitate the exchange of country-by-country (CbC) reports filed by the ultimate parent corporations based in either of the countries.
Base Erosion and Profit Shifting (BEPS) has been at the focus of OECD to address Tax evasion. Multinational companies were accused of gaming tax systems to maximise profits, while potentially depriving tax authorities of revenue.
To address this issue one of the measures adopted by OECD is Country-By-Country Reports. The Country-By-Country Reports requires multinational companies to provide information about:
- The name of each country where it operates.
- The names of all its subsidiaries and affiliates in these countries.
- The performance of each subsidiary and affiliate, without exception.
- The tax charge in its accounts of each subsidiary and affiliate in each country.
- Details of the cost and net book value of its fixed assets in each country.
- Details of its gross and net assets for each country.
Section 286 of the Income-tax Act, 1961 requires Indian subsidiaries of multinational companies to provide details of key financial statements from other jurisdictions where they operate. This provides the I-T Department with a better operational view of such companies, primarily with regards to revenue and income tax paid.
The proposed agreement will enable both India and the US to exchange CbC Reports filed by the ultimate parent entities of International Groups in the respective jurisdictions. As a result, Indian constituent entities of international groups headquartered in the USA, who have already filed CbC Reports in the USA, would not be required to do local filing of the CbC Reports of their international groups in India and vice versa.
India and China have signed protocol to amend Double Taxation Avoidance Agreement (DTAA) for the avoidance of double taxation and for prevention of fiscal evasion with respect to taxes on income by allowing exchange of information. Under Section 90 of Income-tax Act, 1961, India can enter into agreement with foreign country or specified territory for the avoidance of double taxation of income, for exchange of information for the prevention of evasion.
The Protocol to amend DTAA with China updates existing provisions for exchange of information to latest international standards. It incorporates changes required to implement treaty related minimum standards under the Action reports of Base Erosion & Profit Shifting (BEPS) Project. Besides minimum standards, it also brings in changes as per BEPS Action reports as agreed upon by the two sides. It will help prevent tax evasion by allowing the exchange of information.
Tags: Base erosion and profit shifting • BEPS • Corporate tax avoidance • Double taxation • Double Taxation Avoidance • DTAA • Economy • Foreign Direct Investment • India-China • International taxation • Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting • National • Tax • Tax avoidance • Tax Evasion • Taxation in the United States • World Economy