From UPSC perspective, the following things are important :
Prelims level : BEPS
Mains level : Impact of BEPS on Indian economy
- The Cabinet approved ratification of a multilateral convention to implement OECD’s project on checking tax evasion.
- The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) was signed by the then Finance Minister Arun Jaitley in Paris on June 7, 2017.
Base erosion and profit shifting (BEPS)
- Firms make profits in one jurisdiction, and shift them across borders by exploiting gaps and mismatches in tax rules, to take advantage of lower tax rates and, thus, not paying taxes to in the country where the profit is made.
- BEPS refers to this corporate tax planning strategies to “shift” profits from higher–tax jurisdictions to lower–tax jurisdictions.
- The OECD has considered ways to revise tax treaties, tighten rules, and to share more government tax information under the BEPS project.
About the convention
- The Multilateral Convention is an outcome of the OECD/G20 Project to tackle BEPS which is resorted to by MNCs 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.
- Post 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.
- The Convention will modify India’s treaties in order to curb revenue loss through treaty abuse and base erosion and profit shifting strategies.
- It will ensure that profits are taxed where substantive economic activities generating the profits are carried out and where value is created.