Business

Centre ratifies convention to curb company profit shifting

Bid to prevent firms from moving profit out of country

The government announced on Tuesday that it had ratified the international agreement to curb base erosion and profits shifting (BEPS), a bid to stop companies from moving their profits out of the country and depriving the government of tax revenue.

“India has ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (multilateral instruments (MLI)), which was signed by the Finance Minister in Paris on June 7, 2017 on behalf of India, along with representatives of more than 65 countries,” the Finance Ministry said in a release. Base erosion and profit shifting refers to the phenomenon where companies shift their profits to other tax jurisdictions, which usually have lower rates, thereby eroding the tax base in India.

The MLI is a result of concerted work by the G20 countries to tackle the issue of base erosion and profit shifting, something that affects them all. India was part of the Ad Hoc Group of more than 100 countries and jurisdictions from the G20, Organisation for Economic Co-operation and Development (OECD), and other interested countries, which worked on the finalising the text of the Multilateral Convention.

“The MLI will modify India’s tax treaties to curb revenue loss through treaty abuse and base erosion and profit shifting strategies by ensuring that profits are taxed where substantive economic activities generating the profits are carried out,” the government said. “The MLI will be applied alongside existing tax treaties, modifying their application in order to implement the BEPS measures.”Out of 93 tax treaties notified by India, 22 countries have already ratified the MLI so far and the Double Taxation Avoidance Agreement (DTAA) with these countries will be modified by MLI. For the remaining countries with tax treaties with India, the MLI will come into force when they ratify it. The MLI will come into force for India from October 1, 2019.

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Printable version | Feb 18, 2020 5:49:45 PM | https://www.thehindu.com/business/centre-ratifies-convention-to-curb-company-profit-shifting/article28264714.ece

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