‘OECD’s tax haven plan is based on what India believes in’

MUMBAI: India has been an active participant in the Base Erosion and Profit Sharing (BEPS) action plan, the final package of which was rolled out by the Organisation for Economic Co-operation and Development (OECD) in October. The action points, set down by the OECD, aim at closing loopholes that enable MNCs to shift profits to low- or nil-tax countries.

At a seminar organized by the Foundation for International Taxation, Anita Kapur, former chairperson of Central Board of Direct Taxes (CBDT) and current adviser on tax reforms, said: “The theme of BEPS is in consonance with what India always believed in.”

The fundamental principle of the BEPS action plan is to tax income in the place where the economic activities are performed and where value is created and this principle does move towards the source concept. “As tax administrators, when we used to say, please pay your taxes because you have added value in India, we were a minority voice. With the BEPS project, our concerns have been heard and we are now the majority voice,” Kapur said.

The topic of this panel discussion was: ‘Celebration or chaos under BEPS in next 20 years’. Participating in the discussions, in her personal capacity, Kapur emphasized that “BEPS is a fair tax treatment for all.” As regards the next step, Kapur added: “G20, OECD and United Nations (UN) need to break rules in simple, easy to understand tenets, help countries (tax administrators) in capacity building and get MNCs on board.”

According to the OECD, tax revenue losses from BEPS are conservatively estimated at $100-240 billion annually, or anywhere from 4-10% of global corporate income tax (CIT) revenues. Given developing countries’ greater reliance on CIT revenues as a percentage of tax revenue, the impact of BEPS on these countries is particularly significant.

Today, tax activists are demanding that MNCs pay their fair share of tax. Aggressive tax planning has dented the brand image of many companies, such as Amazon, Google, Apple and Starbucks. In this context, Kapur said: “The cost for MNCs can be disproportionate to the taxes they are saving.”

Admitting that BEPS would add a layer of complexity, her take was that if rules are laid down clearly, tax administrators can provide certainty and in turn corporates can manage to get out of litigation and problem areas. TOI had earlier reported that high on the list of action plans to be implemented by Indian revenue authorities is the country-by-country reporting (CBCR) requirement for transfer pricing purposes. MNCs based in OECD or G20 countries (which includes India), with consolidated revenues of at least 750 million euros (around Rs 5,000 crore) will be required to maintain and furnish CBCRs to their tax authorities.

CBCR requires details of the place of incorporation, tax residency, revenues, profits, taxes paid, capital, number of employees and details of activities on a country-by-country basis. According to the BEPS action plan, this requirement is recommended for accounting years starting on or after January 1, 2016.

In this regard, Kapur did not foresee challenges in its introduction as documentation requirements are captured in the Income Tax Rules and not in the Act.

Many of the panellists were sceptical about the smooth and co-ordinated BEPS implementation across all countries, given its magnitude. As Mukesh Butani, partner, BMR legal, said: “It is difficult to believe that governments will act consistently.”

When the panellists were asked to rate the BEPS initiative on whether it would lead to celebration or chaos, Kapur said she “celebrated the change in direction”. Butani, echoed the sentiments of many MNCs and tax professionals, and gave a rating of four to celebration and six to chaos.