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The Base Erosion and Profit Shifting (BEPS) initiative by the Organization for Economic Cooperation and Development (OECD) has brought a tectonic change in the global taxation system.
BEPS has been introduced to bridge the gaps in international taxation for companies that allegedly avoid taxation or reduce tax burden in their home country by engaging in tax inversions (moving operations) or by migrating intangibles to lower tax jurisdictions.
India too is a part of this change and to discuss this and other tax issues, PwC India in association with CNBC TV18 is holding a series—‘India Tax Talks’. In the first episode, the experts deliberated on tax planning and new environment with regards to BEPS.
Panellists Gautam Mehra, Partner & Leader, Tax & Regulatory, PwC India; Jogendra Sethi, CFO, VIP Industries; Kartikeya Dube, Director- Tax, BP India; and Prabal Banerjee, Group Finance Director, Bajaj Group discussed what does BEPS means to India in corporate taxation and what is the role of tax advisory in this new environment.
“India is the forefront of the BEPS project. We have pre-empted some of these changes and we are in the process of taking the lead in quite a few of others. It’s about providing a level playing field to most of players as far as tax is concerned,” said Mehra.
Under BEPS, 15 action items have been listed encompassing issues such as addressing the digital economy, treaty abuse, transfer pricing documentation, and more.
“It has already started percolating in the mindset of people. CFOs in the companies have to change their mindset totally. I think it is for better. The global indication is that without introduction of BEPS, the income tax authorities were losing somewhere in the region of $200-240 billion annually. In India, this is a positive gamechanger. Now you cannot do so called tax planning anymore. If you are earning money, you have to pay the tax, whether through equalisation levy or hybrid mismatch. You have to pay the tax in the area where the economy activity is taking place,” said Banerjee.
Experts said BEPS is in a positive direction and will have tremendous impact on the Indian corporate side, especially in acquiring global companies.
Meanwhile, there are few challenges and wrinkles that will have to be sorted out while implementing the same.
“There used to be lot of ambiguity but now it is much more convenient for our organisation,” said Sethi.
BEPS will sort out transfer pricing issues, in the years to come all litigation will come down substantially.
“I think there is an opportunity as well, tax authorities have to look at their respective context and their country context. I think more information being available also makes it more clear that you have data points to make your case out. BEPS does provide a mutual agreement process and other mechanisms so that tax authorities can get together and discuss,” said Dube.Tax will certainly become a topic of discussion at boardroom level also. The key here is to have public transparency and follow commercial substance.