The government made it clear on Friday it was not in favour of international arbitration to settle tax disputes, a view it recently got endorsed by even the OECD and G20 nations that are drafting a new multilateral treaty on tax evasion.
Revenue secretary Shaktikanta Das said at a tax conference organised by the PHD Chamber in New Delhi that arbitration was not the best way to settle international tax disputes. Das’ assertion comes ahead of a crucial inter-ministerial panel meeting to decide on government’s response to the arbitration notice given by Cairn Energy of the UK.
“Developing countries, including India, feel that arbitration cannot be the best method for dispute resolution. Taxation is the sovereign function of every government,” he said.
Akhilesh Ranjan, joint secretary in the revenue department, who was present at the conference, said that OECD and G20 nations have accepted India’s view that international arbitration was not an option for tax dispute resolution and that it has been dropped from a draft multilateral agreement on tax evasion being prepared for adoption.
The multilateral agreement, aimed at preventing the corporate practice of shifting profits away from where actual economic activity takes place to low-tax jurisdictions, would be ready for negotiations by November 2015 and for adoption by sometime next year, explained Ranjan. This agreement will prevail over many bilateral tax treaties.
An inter-ministerial group is likely to meet in mid next week to decide on the government stand of an arbitration notice slapped by British oil explorer Cairn Energy against a tax demand of R10,267 crore raised on an eight-year old internal reorganisation.