In recent developments, India has given its approval to the Multilateral Convention to Implement Tax Treaty Related Measures (MLI). The primary goal of this convention is to combat Base Erosion and Profit Shifting (BEPS) – an issue where companies exploit tax loopholes to shift profits to low-tax locations. The MLI provides a solution to ensure that businesses pay taxes where they generate their economic activities and profits, contributing positively to the global fight against tax evasion.
Understanding the Multilateral Convention (MLI)
The MLI is an initiative driven by the OECD/G20 project designed to combat base erosion and profit shifting. It was formulated with the intention to control anti-evasion measures that could restrict tax planning strategies exploited by firms. Such strategies usually involve shifting profits artificially to regions with low or no-tax regulations, often resulting in little or no overall corporate tax being paid, since these locations have minimal economic activity.
In essence, the MLI works as a modification tool, altering the application of existing tax treaties to implement BEPS measures effectively. This will lead to necessary amendments to double taxation avoidance agreements (DTAA) signed with the participating countries.
India’s Adoption of MLI and Its Impact
Out of 93 tax treaties notified by India, MLI has already been ratified by 22 countries. Consequently, the Double Taxation Avoidance Agreement (DTAA) with these countries will be modified adhering to the MLI guidelines. For the remaining countries who have tax treaties with India, the convention will come into force once they ratify it. The MLI will be put into effect for India starting from October 1, 2019.
The adoption of MLI by India signifies a crucial step in the direction of minimizing tax evasion and ensuring tax fairness. By modifying the application of its existing tax treaties, India can effectively prevent corporations from exploiting tax loopholes and safeguard its national revenue.
Key Facts and Figures
| Fact | Figure |
|---|---|
| Total Tax Treaties Notified by India | 93 |
| Countries Ratified MLI | 22 |
| MLI Implementation Date for India | October 1, 2019 |
The Future of Tax Measures in India Post-MLI
Looking ahead, the MLI is expected to play a significant role in reshaping the landscape of tax measures in India. It represents a commitment to implementing the most comprehensive changes in international tax rules in a generation. By ensuring that profits are taxed where substantive economic activities generating the profits are carried out, it aims to create a fairer and more transparent global tax system. Furthermore, it will help India further increase its tax revenues by closing gaps that allow corporate profits to disappear or be artificially shifted to low/no-tax environments.
