Economics Current

Union Cabinet approved the ratification of a multilateral convention to check tax evasion.

In News The union cabinet, chaired by the Prime Minister, recently gave nod to the ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) Impact of the ratification The Convention will modify India's treaties in order to curb 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. Background •To Prevent Base Erosion and Profit Shifting India has already ratified the Multilateral Convention to Implement Tax Treaty Related Measures at Paris in June 2017. •It entered into force on 1st July 2018. •It is an outcome of the OECD / G20 Project to tackle Base Erosion and Profit Shifting (BEPS). •The BEPS Project identified 15 actions to address base erosion and profit shifting (BEPS) in a comprehensive manner. Details The decision ensures consistency and certainty in the implementation of the BEPS Project in a multilateral context. Ratification of the Multilateral Convention will enable the application of BEPS outcomes through modification of existing tax treaties of India in a swift manner. After this convention, 90 countries have now implemented the automatic exchange of financial account and tax information. As per the convention, treaty-related minimum standards as agreed as a part of the BEPS package is to be met by all signatories. Base Erosion and Profit Shifting Base erosion and profit shifting (BEPS) refers to corporate tax planning strategies used by multinationals to "shift" profits from higher–tax jurisdictions to lower–tax jurisdictions, thus "eroding" the "tax–base" of the higher–tax jurisdictions. The Organisation for Economic Co-operation and Development (OECD) defines BEPS strategies as exploiting gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no tax being paid. Recent Development India formally ratified the multilateral convention to implement OECD's project on checking tax evasion For bilateral tax treaties, all provisions in the framework will come into effect from fiscal 2020-21. About OECD The Organisation for Economic Co-operation and Development is an intergovernmental economic organization with 36 member countries, founded in 1961 to stimulate economic progress and world trade. It is a forum of countries describing themselves as committed to democracy and the market economy, providing a platform to compare policy experiences, seek answers to common problems, identify good practices and coordinate domestic and international policies of its members.

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