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India joins OECD/G20 Inclusive Framework tax deal

  • Category
    Economy
  • Published
    14th Jul, 2021

India with some other members of OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) adopted a high-level statement containing an outline of a consensus solution to address the tax challenges arising from the digitalization of the economy.

Context

India with some other members of OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) adopted a high-level statement containing an outline of a consensus solution to address the tax challenges arising from the digitalization of the economy.

About

About the Base erosion and profit shifting (BEPS)

  • Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax.
  • This undermines the fairness and integrity of tax systems because businesses that operate across borders can use BEPS to gain a competitive advantage over enterprises that operate at a domestic level. 
  • Developing countries’ higher reliance on corporate income tax means they suffer from BEPS disproportionately.
  • BEPS practices cost countries USD 100-240 billion in lost revenue annually.

The OECD/G20 Inclusive Framework on BEPS

  • Working together within OECD/G20 Inclusive Framework on BEPS, 139 countries and jurisdictions are collaborating on the implementation of 15 measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.
  • The tax deal: The deal consists of two components
    • Pillar One, which is about reallocation of an additional share of profit to the market jurisdictions
    • Pillar Two, consisting of minimum tax and subject to tax rules
  • Some significant issues including share of profit allocation and scope of subject to tax rules, remain open and need to be addressed.

Impact on India

  • The principles underlying the solution vindicates India’s stand for a greater share of profits for the markets, consideration of demand-side factors in profit allocation, the need to seriously address the issue of cross-border profit shifting, and the need for subject to tax rule to stop treaty shopping.

Steps to be taken by India

  • India is in favor of a consensus solution that is simple to implement and simple to comply with.
  • The solution should result in the allocation of meaningful and sustainable revenue to market jurisdictions, particularly for developing and emerging economies.
  • India will continue to be constructively engaged in reaching a consensus-based ready to implement the solution with Pillar one and Pillar two as a package and contribute positively to the advancement of the international tax agenda.
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