 "The BEPS effect: Is India ready?")
As part of G20, India has been very active in the Base Erosion and Profit Shifting (BEPS) project, working closely with the Organization for Economic Cooperation and Development (OECD) officials in preparing rules and participating in deliberations.
"BEPS is a reality. The report presents a consensus among G20 nations," says Akhilesh Ranjan, joint secretary, ministry of finance, who represented India. "We will now start examining the report, and see when and how we can start bringing in the measures," says Ranjan.
According to OECD estimates, BEPS measures will affect around 9,000 companies globally. "Not all companies in India will be affected by these measures, only the very large ones," says Grace Perez-Navarro, deputy director, Centre for Tax Policy and Administration, OECD. Arun Giri, group editor, Taxsutra.com, estimates that 155 Indian companies would qualify for country-by-country reporting that is likely to be the first visible BEPS measure to hit corporates. Besides, this would also apply to subsidiaries of multinational companies operating in India. Companies with global turnover in excess of ^750 million (approximately Rs 6,000 crore) have to report details of revenues, profits and taxes paid on a country-by-country basis to their respective tax administrators.
Tax experts say the success of measures against BEPS will depend on the manner in which they are implemented. "There has to be a balance between competitiveness and compliance. Driving that balance is the challenge for tax administration," says Ranjan. "If we implement it properly, it should not affect the investment climate," he adds. For that, the tax administration would need to ramp up its work force to implement different aspects of the BEPS project, point out experts.
WHAT IS BEPS?
June 2012
"BEPS is a reality. The report presents a consensus among G20 nations," says Akhilesh Ranjan, joint secretary, ministry of finance, who represented India. "We will now start examining the report, and see when and how we can start bringing in the measures," says Ranjan.
According to OECD estimates, BEPS measures will affect around 9,000 companies globally. "Not all companies in India will be affected by these measures, only the very large ones," says Grace Perez-Navarro, deputy director, Centre for Tax Policy and Administration, OECD. Arun Giri, group editor, Taxsutra.com, estimates that 155 Indian companies would qualify for country-by-country reporting that is likely to be the first visible BEPS measure to hit corporates. Besides, this would also apply to subsidiaries of multinational companies operating in India. Companies with global turnover in excess of ^750 million (approximately Rs 6,000 crore) have to report details of revenues, profits and taxes paid on a country-by-country basis to their respective tax administrators.
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The concern among tax experts is the low level of awareness among Indian companies on how the BEPS measures will impact their business operations and the need for increased compliance. "Companies would have to start preparing now to comply with the regulations if they become mandatory from FY17," says Neeru Ahuja, partner, Deloitte Haskins & Sells. "They should accept the fact this is something that will change the way they do business. They have to look at what changes are required in their own set up - in their accounting systems, in their compliance mechanisms, and the way they report data" - Ranjan's advice to corporate India. As BEPS recommendations come into force, tax experts say companies are going to see greater need for sharing information, leading to increased transparency in their business operations globally. Companies will have to think of what resources they need to meet country-by-country reporting requirements, and comply with enhanced transfer price rules. "Companies are going to see more controversy. There will be a lot more arguments among countries over who gets the tax dollars," says Kate Barton, vice-chair for Tax Services, EY Americas. Most tax experts expect a spurt in transfer price-related issues, as governments start questioning companies based on information on their tax outgo and margins in other jurisdictions. Measures to bring the digital economy under the tax net are of concern for the burgeoning start-up and e-commerce industry in India. "Start-ups would have to think about taxation from day one. They can optimise their opportunities if they think about how they want to be structured from the very beginning," says Barton.
Tax experts say the success of measures against BEPS will depend on the manner in which they are implemented. "There has to be a balance between competitiveness and compliance. Driving that balance is the challenge for tax administration," says Ranjan. "If we implement it properly, it should not affect the investment climate," he adds. For that, the tax administration would need to ramp up its work force to implement different aspects of the BEPS project, point out experts.
WHAT IS BEPS?
- The BEPS project was initiated by OECD as a response to the 2008 economic crisis to create sustainable economic growth, and step up the momentum of global recovery. The idea is to strengthen "the foundations for long-term growth" and avoid policies that "promote growth at other countries' expense"
- Multinational businesses have over the years through a complex structuring process artificially reduced their corporate tax outgo by shifting to lower tax jurisdictions. OECD estimates that tax avoidance through base erosion and profit shifting has resulted in loss of tax revenue to the tune of $100-240 billion every year - that is around 4-10% of global corporate income tax revenue
- The BEPS plan aims to improve transparency - for business and governments - by introducing commonly agreed minimum standards for tax administration across countries. This includes alignment of taxation with the location of economic activity and value creation, reinforcing substance requirements in tax rules globally
June 2012
- G20 Summit launches BEPS Project
- OECD publishes BEPs background report
- Public comments and stakeholder discussions continue on a parallel track since June 2013 over issues like transfer pricing, treaty abuse, permanent establishment status, taxing the digital economy
- OECD Action plan delivered to G20
- G20 leader's declaration at St Petersburg endorsing the project, making it a joint project between OECD and G20
- OECD presents G20 leaders with draft proposals to tackle tax evasion
- Push for greater role of developing countries to curb corporate tax avoidance
- OECD issues revised calendar for stakeholder consultations
- OECD gets the mandate to launch negotiations on a multilateral instrument, an implementation package for country-by-country reporting, among others
- G20 Finance Ministers discuss OECD/G20 final BEPS reports