Exhaustive anti-tax evasion reporting norms for MNCs from 2016: OECD

By: | Published: February 8, 2015 12:07 AM

The countries partnering in the tax ‘base erosion and profit shifting’ project also agreed to have a related government-to-government data exchange mechanism, which will start in 2017

tax, India US tiesOnce in place, tax authorities would be able to easily assess whether MNCs artificially show profits in low tax countries instead of reporting them and paying taxes in the country where economic activity takes place.

India and 53 other major economies will implement rules to make large multinational companies report their entire worldwide operations to each of the nations they are present in starting from 2016, under a far-reaching multilateral deal meant to prevent tax evasion.

The Organisation for Economic Co-operation and Development (OECD), a body of 34 major economies that is working with the G20 nations on this anti-tax evasion framework, said on Friday that all partnering nations have agreed to implement the reporting framework in 2016. It would come into force from a financial year starting on or after January 1, 2016.

Once in place, tax authorities would be able to easily assess whether MNCs artificially show profits in low tax countries instead of reporting them and paying taxes in the country where economic activity takes place. India is committed to implementing the project and is contributing significantly in the framing of rules at every stage.

The income tax department in India will have access to all the sensitive operational details of Tata-owned British company Jaguar Land Rover, while UK’s tax authority, HMRC, will have access to the business details of Sterlite Industries (India) Ltd, owned by UK’s Vedanta Resources.

The nations partnering in the tax ‘base erosion and profit shifting’ project also agreed to have a related government-to-government information exchange mechanism to start in 2017.

OECD will present the latest developments in the project during a G20 finance ministers meeting on 9-10 February in Istanbul, Turkey, it said in a statement. “These are important steps forward, which demonstrate that progress is being made toward a fairer international tax system,” the statement said quoting OECD secretary-general Angel Gurría.

Framing of the ‘country by country’ reporting rules and its implementation would require modifications to more than 3,000 bilateral tax treaties worldwide. The details to be reported by MNCs under the ‘country by country’ reporting system include the number of employees in every subsidiary, the economic value addition in every country, the profits reported, where intellectual property rights are held, the related parties in every country and how business is organised globally. The new reporting requirement would give every tax authority a bird’s eye view of whether the economic activity in that country correspond to the profits reported there.

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