The Union Cabinet has given its approval for the signing of multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting.
A product of OECD/ G20 BEPS Project, this convention is aimed at tackling base erosion and profit shifting through tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.
Implementation of the final BEPS package requires changes to over 3,000 bilateral tax treaties, which will be burdensome and time consuming.
In view of the same, the convention was conceived as a multilateral instrument, which would swiftly modify all covered bilateral tax treaties (covered tax agreements (CTA)) to implement BEPS measures.
Signing of the multilateral convention will enable the application of BEPS outcomes through modification of existing tax treaties of India in a swift manner.
It is also in India's interest to ensure that all its treaty partners adopt the BEPS anti-abuse outcomes.
Signing of the convention will enable curbing of 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 and where value is created.
India was part of the ad hoc group, which worked on an equal footing on the finalisation of the text of the multilateral convention, starting May 2015.
The text of the convention and the accompanying explanatory statement was adopted by the ad hoc group on Nov. 24, 2016.