India and Brazil Signed Amended DTAC | 07 Nov 2019

Why in News

Recently, the Union Cabinet has approved the signing of the Protocol amending the Convention between India and Brazil for the Double Taxation Avoidance Convention (DTAC).

  • The amendments aim to implement the recommendations contained in the G20 OECD Base Erosion and Profit Shifting Project (BEPS).
  • It will also help to streamline the existing DTAC with international standards which will help to provide tax certainty to investors and businesses of both countries.
  • The amending protocol will augment the flow of investment through the lowering of tax rates and fees for technical services.

Double Tax Avoidance Agreements (DTAAs)

  • A DTAA is a tax treaty signed between two or more countries.
  • Its key objective is that tax-payers in these countries can avoid being taxed twice for the same income.
  • It applies in cases where a taxpayer resides in one country and earns income in another.
    • The relief is provided by exempting income earned abroad from tax in the resident country or providing credit to the extent taxes have already been paid abroad.
  • It can either be comprehensive to cover all sources of income or be limited to certain areas such as taxing of income from shipping, air transport, inheritance, etc.
  • DTAAs are intended to make a country an attractive investment destination by providing relief on dual taxation.

Base Erosion and Profit Shifting (BEPS)

  • BEPS is a term used to describe tax planning strategies that exploit mismatches and gaps that exist between the tax rules of different jurisdictions.
  • It minimizes the corporation tax that is payable overall, by either making tax profits ‘disappear’ or shift profits to low tax jurisdictions where it is little or no genuine activity.
  • BEPS takes advantage of different tax rules operating in different jurisdictions.
  • BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs).
  • The BEPS initiative is an OECD initiative, approved by the G20, to identify ways of providing more standardized tax rules globally.

OECD/G20 Base Erosion and Profit Shifting (BEPS)Project

  • In 2013, OECD and G20 countries adopted a 15-point Action Plan to address BEPS.
  • The OECD/G20 BEPS Project aims to create a single set of consensus-based international tax rules to address BEPS, and hence to protect tax bases.
  • In 2016, the OECD and G20 established an Inclusive Framework on BEPS. Over 100 countries and jurisdictions have joined the Inclusive Framework.

Difference Between Convention, Agreement, and Protocol

  • Agreement: It is a negotiated and usually legally enforceable understanding between two or more legally competent parties.
    • A binding contract can (and often does) result from an agreement.
  • Convention: It is a formal agreement between States. These are normally open for participation of a large number of States.
    • The generic term ‘convention’ is thus synonymous with the generic term ‘treaty’.
  • Protocol: A protocol is an agreement that negotiators formulate and sign as the basis for a final convention or treaty.

Source:PIB