Global fight against corporate tax avoidance takes off
NEW DELHI, JANUARY 26:Ministers and top tax officials from more than 30 countries including India will sign an international agreement on Wednesday to significantly advance the fight against corporate tax avoidance.
This agreement – Multilateral Competent Authority Agreement (MCAA) – will be signed at the OECD in Paris, sources said.
MCAA will enable consistent and swift implementation of new transfer pricing reporting standards developed under Action 13 of the BEPS Action Plan.
This will ensure that tax administrations obtain a complete understanding of the way multinational enterprises (MNEs) structure their operations, while also ensuring that the confidentiality of such information.
MCAA will facilitate automatic exchange of country-by-country reporting called for in the OECD’s Base Erosion and Profit Shifting (BEPS) project.
What is BEPS?
Gaps and mismatches in the current international tax rules can make profits “disappear” for tax purposes, or allow shifting of profits to no or low-tax locations where the business has little or no economic activity. These activities are referred to as BEPS.
BEPS results in a loss of revenue for governments that could otherwise be invested to support growth and development.
Research undertaken since 2013 confirms the potential magnitude of the BEPS problem, with estimates indicating annual losses of anywhere from 4-10 per cent of global corporate income tax (CIT) revenues – $100-240 billion annually.
In developing countries, where corporate tax as a source of revenue is generally higher than in developed countries, the potential impacts are higher.
In 2013, OECD and G20 governments embarked on the most significant re-write of the international tax rules in a century.
The BEPS project, launched during the most severe financial and economic crisis, had an ambitious goal: revise the rules to align them to developments in the world economy , and ensure that profits are taxed where economic activities are carried out and value is created.
The Organisation for Economic Cooperation and Development’s (OECD) Action Plan on BEPS, approved by G20 countries, had identified 15 actions.
