India Ratifies Convention to Prevent BEPS

Recently India has ratified the Multilateral Convention to Implement Tax Treaty Related Measures (MLI) to prevent Base Erosion and Profit Shifting (BEPS).

• The MLI is aimed to prevent firms from moving profit out of country.
  
  • It ensures that profits are taxed where substantive economic activities generating the profits are carried out.
• Out of 93 tax treaties notified by India, 22 countries have already ratified the MLI so far and the Double Taxation Avoidance Agreement (DTAA) with these countries will be modified by MLI.
  
  • For the remaining countries with tax treaties with India, the MLI will come into force when they ratify it.
• The MLI will come into force for India from October 1, 2019.

The Multilateral Convention to Implement Tax Treaty Related Measures (MLI)

• The multilateral convention is an outcome of the OECD/G20 project to tackle base erosion and profit shifting.
• This project was designed to work on anti-evasion measures that could curb tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
  
  • Such geographies have little economic activity, resulting in little or no overall corporate tax being paid.
• The MLI will be applied alongside existing tax treaties, modifying their application in order to implement the BEPS measures.
• It will lead to amendments to double taxation avoidance agreements (DTAA) with the countries signatories to the convention to plug revenue leakages.