Skip to main content

Global tax- avoidance rules may over ride Indian treaties

By
There is a possibility that the General Anti-Avoidance Rules (GAAR,ontaxes)and the tax treaties signed by the government with those of Mauritius,Singapore and Cyprus,and even othernations suchasNetherlands,couldbeovertakenbyanotherevent.
These could,say experts ,be partially or fully over ridden by the Multilateral Instrument (MLI) to implement tax treaty related measures for preventing Base Erosion and Profit Sharing (BEPS).

BEPS is a tax avoidance strategy used by multinational companies— profits are shifted from jurisdictions that have high taxes to those with low or no taxes.The Organisation for Economic Cooperation and Development (OECD)grouping of countries had developed the MLI to tackle such issues.A little over 100 countries had adopted the MLI by November 2016.It will be signedby themthisJuneandislikelytobe implementedbyIndiainApril2018 or2019.

The MLI and related BEPS measures will be implemented through amendments in the IncomeTax(I-T) Act.“MLI islikely to override the relevant parts of existing bilateral treaties,”observed are cent note by global consultancy PwC.

Aftertherecentamendingbythe governmentofitstaxtreatieswith Mauritius,CyprusandSingapore,itis believed some foreign portfolio investorsmightshifttoEuropean jurisdictionssuchasSpain,France orNetherlands,toavoidpayingtax oncapitalgains.However,thepossibilitythatMLImightoverridetreaties witheventhesecountriescouldpreventthis.Inexistingregulations,in thecaseofataxtreaty,theI-TActshall applytotheextentthatitismorebeneficialtothetaxpayer.However,notin thecaseofGAARprovisions,which willapplyevenwherethetaxtreatyis morebeneficialtothepayer.

IntroductionofMLIcouldmean anotherpossibility.“Ifthetaxtreaty (afterMLI)itselfismorestringent, willtheGAARprovisionsstillapply? Thereislackofclarityonthis.It appearsthatinaconflictbetween theI-TActandtheMLI,thelatter shouldordinarilyprevail.However, incaseswhereGAARprovisions apply,anattemptshouldbemade forharmoniousreadingofGAAR provisionsandMLI,”saidSuresh Swamy,partner,financialservices, PwCIndia.TheMLIhasa‘principal purposetest’.Wherein,taxtreaty benefitsmaybedeniedifoneofthe principalpurposesofanarrangementoratransactionwasto,directlyorindirectly,obtaintaxbenefit. “Thistestappearstobewiderthan theexistingGAARprovisionsin Indiantaxlaw,”saysSwamy.

Further,MLIswillcontainlimitation-on-benefitsclauses,.Theseare Specific Anti Avoidance Rules (SAAR),aimedatcertainarrangementsoftaxavoidance.Thiscould createanothergreyarea.“Treatybenefitswillberestrictedinaccordance withtheseclauses.GAARprovisions, though,maystillbeapplicableand invokedbythetaxauthoritiesand overridetheseSAARprovisions. However,thisisanuntestedpropositionandcouldleadtosomelitigation,” said Punit Shah, partner, DhruvaAdvisors.

MLIprovidesparticipatingcountriesandjurisdictionstheoptionto specifyatthetimeofratificationthe provisionstheywouldoptinandout of.TheIndiangovernmentrecently issuedastatementindicatingtheir approachtowardsBEPSandthepositionslikelytobetaken,depending onthecontentsoftheMLI.Forthis purpose,acommitteehasbeenconstitutedtoexaminealltheaction plansoftheBEPSregimeandrecommendations,saidsources.
Business Standard New Delhi,19th January 2017

Comments

Post a Comment

Popular posts from this blog

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the...
Post a Comment
Read more

SFBs should be vigilant, proactive to mitigate risks: RBI deputy guv

By
  The Reserve Bank of India’s Deputy Governor Swaminathan J on Friday instructed the directors of small finance banks (SFBs) to be vigilant and proactive in identifying emerging risks in the sector.Speaking at a conference for directors on the boards of SFBs, Swaminathan highlighted the role of governance in guiding SFBs towards sustainable growth with stability. He also emphasised the importance of sustainable business models.Additionally, he highlighted the need for strengthening cybersecurity to protect the entities against digital threats and urged for a stronger focus on financial inclusion, customer service, and grievance redressal to ensure a broader reach of banking services.Executive Directors S C Murmu, Rohit Jain, and R L K Rao, along with other senior officials representing the Supervision, Regulation, and Enforcement Departments of the RBI, also participated in the conference.   -  Business Standard  30 th  September, 2024
Post a Comment
Read more

Brigade Hotel Ventures files draft papers with Sebi for Rs 900 crore IPO

By
  Brigade Hotel Ventures Ltd, owner and developer of hotels in South India, has filed draft papers with capital markets regulator Sebi to raise Rs 900 crore through an initial public offering (IPO).The proposed IPO is entirely a fresh issue of equity shares with no Offer-for-Sale (OFS) component, according to the draft red herring prospectus (DRHP).Proceeds from the issue to the tune of Rs 481 crore will go towards payment of debt, Rs 412 crore will be allocated to the company and Rs 69 crore to its material subsidiary, SRP Prosperita Hotel Ventures Ltd.Additionally, Rs 107.52 crore will be used to purchase an undivided share of land from the Promoter, BEL, and the remaining funds will support acquisitions, other strategic initiatives, and general corporate purposes.The company may raise up to Rs 180 crore through a Pre-IPO Placement.   If the placement is undertaken, the issue size will be reduced.Brigade Hotel Ventures Ltd is a wholly-owned subsidiary of Brigade Enterprises ...
Post a Comment
Read more