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1

Base Erosion and Profit

Shifting („BEPS‟)

Saptarishi Basu

- Broad overview and India perspective

Recognised as Tier I firm by 2

BEPS – But why?


Starbucks


Google


Why now?

• Austerity drives globally

• Pressure on revenue collections and Governments

• Aggression of tax planning by MNCs

• Inadequacy of current laws and treaty provisions to effectively deal with innovative business models

• Political backdrop

• Civil societies and morality in taxes

• Unanimity among countries to tackle large scale tax avoidance

• Increased realization regarding inadequacy of the present rules to tackle various avoidance techniques

• Increasing impatience with traditional ways of looking at arm‟s length standard in TP, PE, deductibility of expenses, use of tax

treaties, lack of exchange of information, inadequate KYC norms, bank secrecy laws


BEPS


BEPS initiative by OECD

• Base Erosion and Profit Sharing (BEPS) refers to:

Tax planning strategies

that exploit gaps and mismatches in tax rules to make profits 'disappear' for tax purposes, or

to shift profits to locations where there is little or no real activity but the taxes are low resulting in little or no overall corporate tax

being paid

• OECD aims to address BEPS issues on account of concerns raised by several countries regarding the potential of MNEs to reduce their tax liabilities through erosion of tax base or through shifting of income to no or low-tax countries

• G8 and G20 governments have endorsed OECD‟s work on BEPS and have committed to make appropriate changes to their tax laws

• Major developing (non-OECD) countries, including India, are actively participating in BEPS project

• Multilateral instrument to modify bilateral tax treaties is scheduled to be open for signature by June 2017 in Paris

In the recent past, MNCs like Starbucks, Apple, Microsoft, Google, Amazon, etc. made news for their aggressive tax structures. It

is alleged that such structures are designed in a way so as to reduce the taxable income by shift of profit to lower tax jurisdictions


• Action Plan on BEPS released by OECD identified 15 actions based on three fundamental pillars:

Introducing “coherence” in domestic tax rules that affect cross-border activities

Reinforcing “substance” requirements in existing international standards

Improving “transparency” as well as certainty for businesses and governments

BEPS initiative by OECD

Final package of measures (15 Reports) under BEPS released on 5 October 2015


15 Actions around 3 main pillars

Coherence

Neutralising effects of Hybrid Mismatch Arrangements (2)

Counter Harmful Tax Practices (5)

Limit base erosion via Interest

Deductions (4)

CFC Rules (3)

Substance

Preventing Tax Treaty Abuse (6)

Prevent artificial avoidance of

PE Status (7)

TP Aspects of Intangibles (8)

TP/Risk and Capital (9)

TP/High Risk Transactions (10)

Transparency

Establish methodologies to collect and analyse BEPS

data (11)

Require taxpayers to disclose their aggressive tax planning arrangements (12)

TP Documentation (13)

Making Dispute Resolution more effective

(14)

Address tax challenges of digital economy (1)

Development of multilateral instrument for amending bilateral treaties (15)


BEPS – Impact on India

• India is a active participant in the BEPS project

• India has already introduced the following measures in its domestic tax laws / bilateral tax treaties in order to combat BEPS:

Introduction of “Equalisation Levy” for specified digital transactions

Country-by-Country Reporting

Introduction of Place of Effective Management Test („POEM‟) of corporate residency

Levy of Buy-back tax to curb treaty abuse

Revision of tax treaties with Mauritius, Cyprus and Singapore tax treaty to remove capital gains exemption

Enactment of General Anti Avoidance Rules w.e.f. FY 2017-18

Introduction of limitation of interest deductions

• CBDT vide Press Release dated 8 January 2017 states that India fully committed to conclusion of pending design of BEPS

rules and to ensure the successful implementation of the recommendations of BEPS Project in 2017


Action - 1


Typical challenge posed by digital economy

US

India /

Japan

China

Bermuda

• An Indian resident, while on a visit to Japan orders certain

goods online

• The order is received and processed by servers of the US

based MNC which are located in Bermuda

• However, the delivery of goods takes place from a warehouse

located in China to India

Which country has a right to tax such income arising

from sale of goods?


Highlights of BEPS Report on Action 1

• Aims at identifying issues raised by the digital economy and for developing detailed options to address them

• Final Report contains a detailed overview of the digital economy, its business models and its key features, identifies the

various BEPS challenges that arise in the context of the digital economy and provides recommendations on how to

address them

• Report discusses several tax and legal structures that are relevant in the context of the digital economy and the means by

which they exacerbate BEPS risks both in the country of residence as well as in the country of source

• For instance, the importance of intangibles in the context of the digital economy coupled with their mobility for tax

purposes under the existing regime could generate substantial opportunities for minimising taxes in the country of

residence

• Few other measures in this regard (e.g. (a) a new nexus in the form of a significant digital presence test, (b) a withholding

tax on certain kinds of digital transactions and (c) an equalisation levy) were considered, but not recommended.

• This is based on an expectation that the measures developed as part of the BEPS project will mitigate some of the tax

challenges posed by the digital economy and that consumption taxes will be effectively levied in the market country.

Action 1 – Address the Tax Challenges of the Digital Economy



• India had advocated introduction of withholding tax on digital transactions (a position which was ultimately not accepted in

the Report)

• Led to introduction of “Equalisation Levy” vide Finance Act, 2016 (will be discussed in detail in ensuing slides)

Action 1 – BEPS Impact on India


Equalisation Levy

• Enacted under Chapter VIII of Finance Act 2016 - not part of domestic income-tax law (Fallout of BEPS recommendation

on Action 1)

• Leviable @ 6% on consideration received/ receivable by a non-resident not having a PE in India, inter-alia, from a person

resident in India

• Thus, if the non-resident has a PE in India, payments to such NR will not attract Equalisation Levy

• Applicable on following “specified services”

online advertisement;

any provision for digital advertising space;

any other facility or service for the purpose of online advertisement; and

any other service as may be notified by the Central Government in this behalf.

• Obligation on resident payers to deduct and deposit such levy

• Failure to deduct and deposit levy would result in disallowance of tax deduction for the payer in addition to other penal

consequences

• Income exempt in the hands of non-resident recipient. Hence, no withholding tax obligation if the payment is subject to

Equalisation levy


Equalisation Levy

• Wide scope of the phrase “specified services”

Cross charge from overseas parent for various group services, inter alia, including the Indian entity‟s share of online

advertisement spending – whether covered?

Is payment by advertisers to producers (for production of advertisement) also subject to this levy as the law uses the

phrase “for the purpose of online advertisement”?

„Online advertisement‟ can be one of the purpose and not the only purpose for which payment is made. In such a case,

how does the mechanism of this levy work?

• Creditability of equalisation levy in the overseas jurisdiction?

To this extent, the Equalisation Levy regime marks a departure from the recommendations of OECD in Action Plan 1

which stated that existing treaty obligations ought to be respected to ensure consistency with existing international legal

commitments.


Action - 2



• Hybrid mismatch arrangement - An arrangement that exploits the different tax treatment in two jurisdictions to produce a

mismatch in tax outcomes. OECD aims to neutralise the effects of hybrid mismatch arrangements

• The final report on action 2 is broadly in line with the interim report released in September 2014.

• The OECD provides recommendations on the designing of domestic rules to prevent hybrids from being a source of

„double non-taxation‟.

• Specific hybrid mismatch rules are recommended to address the following issues

Multiple deductions for a single expense

Deduction in one country without corresponding taxation in another

Generation of multiple foreign tax credits for one amount of foreign tax paid

• Specific changes to domestic tax rules

Denial of dividend exemption

Proportionate limitation on withholding tax credits

Action 2 – Neutralizing the effect of hybrid mismatch arrangements


Illustration : Hybrid Mismatch Arrangement

A Co

C Co

B Co

Loan

Interest

• A Co lends to “C Co” (a wholly owned subsidiary) through a

permanent establishment (PE) in Country B.

• All the countries treat the loan as a debt instrument for tax purposes.

• Payments of interest under the loan are deductible under Country C

law, but not included in income under Country A law.

• Country A provides an exemption for income derived through a

foreign PE.

• The payment of interest will give rise to a deduction/ no inclusion

outcome if the payment is not treated as ordinary income under both

Country A and B laws.

• A deductible payment that gives rise to a mismatch in tax outcomes

will be treated as within the scope of the hybrid financial instrument

rule, if the mismatch can be attributed to the tax treatment of the

instrument under the laws of Country A or B.

• BEPS Recommendation

Deny deduction of interest in the hands of C Co;

Defensive rule – Country A / Country B to treat receipt of interest

as ordinary income

Interest payment to a tax exempt PE



• No specific rules yet in the Indian tax law that are designed to neutralize the effects of hybrid arrangements

• However, structures involving hybrid arrangements may be hit under GAAR (effective from FY 2017-18) (by

re-characterisation of debt into equity and vice versa)

Action 2 – Impact on India


Action - 3



Action 3 - Designing Effective Controlled Foreign Company („CFC‟) Rules

Objective

To develop, design and strengthen controlled foreign company rules.

Key issues

Creation of affiliated non-resident taxpayers and routing income of a resident enterprise through the non-resident affiliate

BEPS Recommendations

The report sets out the following six building blocks for the design of effective CFC rules:

Adopting broader definition of a CFC to cover corporate / transparent entities

CFC exemptions and threshold requirements

Definition of income

Computation of income

Attribution of income; and

Prevention and elimination of double taxation.




• No CFC rules currently under domestic law

• CFC Rules were brought under the DTC, but DTC was never invoked

• However, post introduction of POEM test, CFC rules may no longer be a policy priority for the Government as the abuse

sought to be targeted by POEM & CFC is largely similar


Action - 4


• Objective

To address base erosion and profit shifting using deductible payments such as interest or such other equivalent

payments that can give rise to double non-taxation

• Key issues

Groups placing higher levels of third party debt in high tax countries;

Groups using intragroup loans to generate interest deductions in excess of third party interest expense;

Groups using debt to fund the generation of tax exempt income


Action 4 – Limit Base Erosion via Interest Deductions and Other Financial Payments

• BEPS Recommendations

Fixed Ratio Test : Limit the net interest deductions to a fixed proportion (10-30%) of tax-adjusted earnings (EBITDA

or EBIT) in a territory

Group-wide Ratio Test : interest deductions up to net interest /EBITDA ratio of group



Action 4 – Limit Base Erosion via Interest Deductions and Other Financial Payments

Proposed Option - Group-wide test

• A group-wide test would limit a company‟s net interest

deductions to a proportion of its group‟s actual net third

party interest expense

• Allow groups to claim tax relief for their real cost of

funds

• Groups can continue to centralise third party borrowings

in the entity/country which is most efficient

• A best practice recommendation could include an

agreed approach to be applied consistently by all

countries or provide flexibility for a country to

incorporate existing tax principles within its rule

• No country currently applies a group-wide test as a

main rule

Proposed Option - Fixed ratio test

• A fixed ratio test operates by applying a fixed

benchmark ratio to an entity‟s earnings or asset

value

• Relatively inflexible, applying the same benchmark

ratio to all entities irrespective of the level of third

party gearing

• Difficult to establish the “correct” benchmark ratio,

for example: current fixed interest/EBITDA ratios

are often in excess of groups‟ actual ratios

• More straight-forward for groups and tax authorities

to apply

Combined approach would allow lower risk companies to apply a simple fixed ratio test, while more highly geared companies

could claim higher deductions by applying a group-wide test


• Interest deduction limitation specifically introduced through Section 94B

• Other provisions which could be considered:

• Provisions such as section 14A limits the deductibility of expense (including interest payments) incurred in relation to earning of exempt

income

• Thin cap rules could be indirectly made applicable through a potential re-characterisation of debt into equity once GAAR comes into force

• Also, debt flows into India subject to stringent regulatory framework - Minimum debt equity ratio (4: 1 under automatic route and 7:1 under

approval route)




Action - 5



• Objective - The Action Plan will look at developing recommendations on the definition of harmful tax practices, and

developing a strategy to expand to non-OECD members.

BEPS Recommendation

• Review of the existing regimes by emphasis on definition of substantial activity requirement in the context of IP regimes

− “Substantial activity” criterion to be applied when determining whether tax regimes are harmful in relation to IP regimes “nexus approach” is

the agreed approach.

− Under this approach, the application of an IP regime should be dependent on the level of research and development (R&D) activities carried

out by the taxpayer itself;

• Improving transparency through compulsory spontaneous exchange on rulings related to :

rulings on preferential regimes;

unilateral advance pricing agreements (APAs) or other cross-border unilateral rulings in respect of transfer pricing;

cross-border rulings providing for a downward adjustment of taxable profits (in particular excess profit and informal capital

rulings);

permanent establishment (PE) rulings; and

related party conduit rulings

Action 5 – Counter Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance




• Patent Box Regime introduced vide Finance Act 2016 – Intended to be in compliance with Action 5 albeit with few key

differences

• With India seeking to remove tax incentive regimes in sync with a reduction in corporate tax rate, this action may have little

direct relevance

• However, Indian groups seeking taxation as per preferential regimes in overseas jurisdictions need to be mindful


Action - 6



Action 6 - Preventing granting of treaty benefits in inappropriate circumstances

• Key issues identified

Use of low taxed branches of a foreign company

Use of conduit companies/ regimes to channel investments and for intra-group financing

Use of multiple layers of legal entities

Artificial shifting of income through transfer pricing arrangements


Each contracting state to include a minimum standard in new treaties, and protocols to existing treaties, choosing from one

of three options:

Limitation of Benefit (LOB) article, combined with anti-conduit rules (either incorporated in the treaty or under domestic

law);

Principle of Purpose Test (PPT); or

LOB in combination with a PPT



Action 6 - Impact on India

• Treaty abuse has long been India‟s foremost concerns in relation to cross border taxation

• Various measures adopted by India (both at unilateral and bilateral levels) to curb its incidence. These include:

Preamble clause in tax treaties - Preamble to many of India‟s tax treaties already include “prevention of fiscal

evasion” as one of the objectives for which treaty is entered into (e.g. – India‟s tax treaties with US, Singapore, UK,

Brazil, China, Netherlands)

Amendments in domestic law - Requirements to furnish TRC, obtaining of PAN, notifying blacklisted jurisdictions, etc.

LOB clauses - Many tax treaties (>30) already include a LOB clause (Comprehensive as well as subjective LOB based

on PPT rule)

Treaty override - Domestic law to override tax treaties in cases where GAAR provisions are triggered

Revision of tax treaties – Example, India – Mauritius DTAA / India – Singapore DTAA (to remove capital gains

exemption on prospective basis)


Action - 7



Action 7 - Preventing artificial avoidance of PE status

Objective:

Prevent artificial avoidance of PE by redefining the threshold for creating a PE to prevent base erosion and profit shifting.

Key issues

Artificial avoidance of PE status by:

• Use of commissionaire of traditional distributor models;

• Use of preparatory and auxiliary exemptions - artificial fragmentation of operations among multiple group entities;

• Splitting up of contracts; and

• Address related profit attribution issues .




On use of commissionaire arrangements instead of traditional distributor models;

A commissionaire arrangement may be loosely defined as an arrangement through which a person sells products in a

given State in its own name but on behalf of a foreign enterprise that is the owner of these products


where activities performed by an “intermediary” in a country result in the regular conclusion of contracts to be performed

by a non-resident entity, the non-resident entity will have a taxable PE in that country unless the intermediary is an

independent agent acting in the ordinary course of its business.

On preparatory and auxiliary exemptions –

Article 5(4) of the OECD Model deems a PE not to exist where a place of business is used solely for preparatory and

auxiliary activities


− Removal of the reference to „delivery‟ (which will catch situations where an enterprise maintains a warehouse, unless

purely preparatory or auxiliary);

− Removal of the exception for „purchasing offices‟ or for both „purchasing offices‟ and „places maintained for the

„collection of information‟




Artificial fragmentation of operations among multiple group entities;


− Proposal to address the abuse of Art 5(4) through fragmentation of activities between related parties;

− Art 5(4) will not apply with respect to a specific place of business if taxable activities that constitute “complementary

functions that are part of a cohesive business operation” are carried on in the country by the same enterprise or by

associated enterprises

Splitting up of contracts

− To be addressed by GAAR (PPT rule) or „Automatic Rule‟



Action 7 - Impact on India

• Many of India‟s tax treaties already have a wider definition of Agency PE

• Also, fragmentation of activities and splitting up of contracts have in some Indian cases been targeted under judicial anti-

abuse principles

• Limiting the scope of the exclusions in Article 5(4) to only those activities that are preparatory and auxiliary in scope could

see existing business models become liable to tax in India under the new standard


Action - 8



Action 8 - Aligning Transfer Pricing Outcomes with Value Creation | Intangibles

• Objective

Aims at developing rules to prevent base erosion and profit shifting where intangibles are owned by, used by, contributed

to or moved among group members;

• Key Issue

Base erosion and profit shifting where intangibles are owned by, used by, contributed to or moved among group members;


Develop rules to prevent BEPS by moving intangibles among group members;

Adopt a broad and clearly delineated definition of intangibles;

Ensure that profits associated with the transfer and use of intangibles are appropriately allocated in accordance with

(rather than divorced from) value creation;

Develop TP rules or special measures for transfers of hard-to-value intangibles; and

Update the guidance on Cost Compensation Agreements (CCAs)



Key points from a transfer pricing perspective

Risks

Assets Functions

Historically MNEs have:

• Utilised contracts to move assets and risks to holding / shell companies

• Leave residual local returns

• Shift economic ownership for and major benefits from, important local

functions to principal companies

The OECD and other key G20 countries are

pushing to:

• Raise the importance attached to people and

local functions

• Focus on key decision makers and where

they are located

• Consistency between contractual relationship

and actual conduct

• Cap profits associated with incoherent

contractual rights



• Emphasis on the need to accurately delineate a transaction and to ensure that the actual conduct of parties is reflected in contractual

arrangements

• Transactions can be disregarded for TP purposes where they lack commercial rationality

• Contractual allocations of risk to be respected only when they are supported by actual decision-making i.e. exercising control over these risks

coupled with financial capacity to assume such risks

• „Cash boxes‟ or entities merely providing funding without performing significant activities -entitled only to risk-free returns to the extent of their

capital contributions, if they have no de-facto control on the associated risks

Assumption and Allocation of risk

Control & Authority Risk Management Function Financial & Technical Capability


Action - 9



Action 9 - Risks & Capital

• Key Issue

Base erosion and profit shifting by transferring risks among, or allocating excessive capital to, group members


Develop rules to prevent BEPS by transferring risks among, or allocating excessive capital to group members. This will

involve:

Ensuring that inappropriate returns will not accrue to an entity solely because it has contractually assumed risks and

has provided capital

Alignment of returns with value creation

STA

GE

1

Identification of economically significant intangibles with specifications ST

AG

E 2

Analysing contractual arrangement to determine legal ownership, rights & obligations of entities in relation to intangibles ST

AG

E 3

Undertaking functional analysis to determine actual conduct of parties on ground ST

AG

E 4

STA

GE

5

STA

GE

6 Determination

of arm‟s length price based on FAR of each entity

Allocate risk

between the

entity

assuming risk

and the entity

having

financial

capacity to

assume the

risk

Confirm

consistency

between

contractual

arrangement

and conduct

on ground


Action - 10



Action 10 - High-Risk Transactions

• Key issues

Base erosion and profit shifting by engaging in transactions which would not, or would only very rarely, occur between

third parties


Develop rules to prevent BEPS from other high risk transactions - transactions which would not, or very rarely,

occur between 3rd parties:

Clarify the circumstances in which transactions can be re-characterized

Clarify the application of TP methods, in particular profit splits, in the context of global value chains and

Provide protection against common types of base eroding payments, such as management fees and head office

expenses

Guidance on intra-group transaction, application of transactional profit split method and commodity transactions



Services are of supportive nature Services are not part of core

business of the MNE

Services do not require use or creation of unique intangibles

Services do not involve control/ creation of substantial risk by /

for service provider

Low Value Adding IGS

If activity is a core activity of member company but is

a non core activity for the MNE group as a whole –

qualifies as low value adding IGS

Guidance not applicable if such services are also

rendered to unrelated customers of the members

of the group

Categorization of services as part of core and non core business and substantiating the

reason for the same becomes important

Approach

• ALP for low value-adding IGS, passing the benefit test is Cost (which can be direct and allocated) plus 5% mark up.

• Report suggest that tax administration may decide an appropriate threshold to qualify as simplified approach.

Key areas and guidance regarding Low value adding Intra Group Services (IGS)

The objective of inclusion of IGS is to provide protection against common types of base eroding payments, such as management fees and

head office expenses.


Action - 11



Action 11 – Measuring and Monitoring BEPS

Objective

• Establish methodologies to collect and analyze data on BEPS and the actions to address it

• Several studies undertaken and data available identifying disconnect between location of value creating activities and

reporting of profits for tax purposes. Further, work to be done to evaluate such studies

• Develop outcome based techniques which seeks to allocate income across jurisdictions relative to value creating activities

• Develop recommendations regarding indicators of the scale and economic impact of BEPS

• Ensure that tools are available to monitor and evaluate the effectiveness and economic impact of the actions taken to

address BEPS on an ongoing basis

• Assess a range of existing data sources, identifying new types of data that should be collected by tax administrators and

developing methodologies to analyse the same-based on both aggregate (e.g. FDI and balance of payments) and micro-

level data (e.g. financial statements and tax returns)

• Balance the above objectives with taxpayer confidentiality and administrative costs


Action - 12



Action 12 - Mandatory Disclosure Rules.

• Issue

Comprehensive and relevant information on tax planning strategies often unavailable

Audit suffers from number of constraints as tool for early detection of aggressive tax planning techniques


Develop recommendations regarding the design of mandatory disclosure rules for aggressive or abusive transactions,

considering administrative costs, current experiences in different countries, country specific needs and risks, etc.

Focus will be international tax schemes - explore a wide definition of “tax benefit” in order to capture such transactions

Design and put in place enhanced models of information sharing for international tax schemes between tax

administrations


Action - 13



Action 13 - Transfer Pricing Documentation and Country-by-Country Reporting

• Objective – To provide revised guidance on transfer pricing documentation, including the template for country-by-country

reporting, to enhance transparency while taking into consideration compliance costs

• BEPS Recommendations - A three tiered approach to TP Documentation applicable to MNEs having consolidated group

revenue of EUR 750 million

A. Master File

Aimed at providing a clear understanding of MNE‟s global operations by covering the following information:

Organizational Structure of MNE;

Description of MNE‟s major business lines;

Intangibles- Strategy for development, ownership, important related party agreements;

Intercompany financial transactions; and

Financial and tax positions-MNE‟s consolidated accounts; APA‟s and Advance rulings, etc.



B. Local File - Aims at providing local country transactional information in the following manner:

Local entity Controlled transactions Financial Information

• Key management

• Local Organisation Chart

• Business restructurings

• Local reporting lines

• Key competitors

• Description and context

• Payments / receipts

• Inter-Co. agreements

• TP analysis

• APAs

• Financial accounts

• Reconciliation

• Comparable data



C. CBC Reporting Template

CbC Template

Tax jurisdiction

Revenue

Profit (loss)

before income

tax

Income tax

paid (on a

cash basis)

Income tax

accrued –

current year Stated capital

Accumulated

earnings

Number of

employees

Tangible

assets other

than cash and

cash

equivalents

Unrelated

party

Related

party Total

Country A

Country B

CbC Template

Main Business Activity (ies)

Tax

jurisdiction

Constituent

entities resident

in the tax

jurisdiction

Tax jurisdiction of

organisation or

incorporation if

different from tax

jurisdiction of

residence R&

D

Ho

ldin

g o

r m

ana

gin

g

inte

llectu

al p

rop

ert

y

Pu

rch

asin

g o

r p

rocu

rem

ent

Ma

nu

factu

rin

g o

r p

rod

uction

Sa

les, m

ark

etin

g o

r

dis

trib

utio

n

Ad

min

istr

ative

, m

ana

ge

ment

or

su

pp

ort

se

rvic

es

Pro

vis

ion o

f se

rvic

es t

o

unre

late

d p

art

ies

Inte

rnal g

roup

fin

an

ce

Re

gu

late

d f

inan

cia

l se

rvic

es

Insura

nce

Ho

ldin

g s

hare

s o

r o

the

r

eq

uity in

str

um

en

ts

Do

rma

nt

Oth

er

Country A Entity A

Entity B



Action 13 – Additional clarification

• On 6 April 2017, the OECD issued additional guidance on implementation of CbCR providing the following

Definition of the terms related party revenues and revenue for CbCR;

Definition of consolidated revenue;

Accounting principles for determining existence and membership of Group;

Treatment of major shareholding; and

Transitional filing options


Action - 14



Action 14 - Making Dispute Resolution Mechanisms More Effective

Objectives

Develops solutions to address obstacles that prevent countries from solving treaty-related disputes under MAP, via a

minimum standard in this area as well as a number of best practices. It also includes arbitration as an option for willing

countries.

BEPS Key recommendations

• Put an obligation to resolve cases (not endeavour)

• Ensure independence of a competent authority

• Provide sufficient resources and performance indicators to a competent authority

• To ensure that audit settlements (e.g. no penalties, if MAP right waived) do not block access to the MAP

• To implement bilateral APA programme and recurring (multiple year issues) and roll back provisions



Action 14 - Making dispute resolution more effective

• Need for strengthening the MAP process in India with a view to making it more efficacious

• No time limit for settlement of disputes under MAP (except in context of UK and US where a 2 year time limit exists) often

leads to long delays

• India has not agreed to implement binding arbitration to resolve treaty disputes under MAP


Action - 15



Action 15 - Developing a multilateral instrument to modify bilateral tax treaties

Action 15 aims to develop a multilateral instrument to enable jurisdictions to implement measures developed in the course of

the work on BEPS and to amend bilateral tax treaties

• Key issues / Need for multilateral instrument

Updating of the current tax treaty network highly burdensome and time consuming;

Changes to model only makes gap between content of model and content of actual tax treaties wider. This contradicts

the political objective


Analyze the tax and international law issues for development of a multilateral instrument to enable jurisdictions (that

wish to) to implement measures and provide a foundation for amendment of bilateral tax treaties

Develop a multilateral instrument to provide an innovative approach to international tax matters-reflecting rapidly

evolving nature of global economy and adapt quickly to it

Streamline the implementation of tax treaty related BEPS measure


Thank You

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