Paper out on evolving global tax policy trends.

MUMBAI: A White paper on "Evolving Global Tax Policy Trends: Outlook for India" by CII and EY, which explores some of the emerging trends in global taxation and delineates its implications on India's tax policy, has been released.

The paper acknowledges that in an increasingly interconnected global economy, wherein the quest to attract cross-border investments is of increasing importance, many countries across ideological spectrum and at varying levels of development are adopting investor friendly approach by ensuring certainty and predictability in their tax systems and reducing the cost of compliance. At the same time, it is also observed that emerging economies are expecting foreign investors to contribute to the exchequer by paying the taxes which are due to them.

Speaking about the white paper, Chandrajit Banerjee, Director General, CII, said that "our country presently needs a tax system which is simple, broad-based, less litigious and transparent and ensures international competitiveness. We need to benchmark our systems with international best practices. The white paper provides deep insights into evolving tax landscape around the world and in India."

The White paper brings out that internationally, tax avoidance has become an area of concern and several countries are becoming apprehensive about tax evasion and avoidance. It is in this context that the debate over base erosion and profit shifting (BEPS) has assumed special significance for both OECD and non-OECD countries.

The paper informs that in July 2013, OECD has launched an action plan on BEPS, based on the recommendations of the G20 Finance Ministers, identifying 15 specific action steps needed to equip governments to prevent 'double non-taxation'. Major developing countries like India and China which have identified base erosion as a major concern, are actively working with OECD on BEPS.

The substantive tax issues involved in BEPS are complex and addressing the same requires a multi-dimensional approach especially as the apprehension is about whether companies follow he spirit of law or whether they pay fair share of taxes as per the law of the land. The paper also referred to 'digital economy' issues which are quite relevant in Indian context and that India is actively working with OECD on BEPS. The OECD BEPS discussion is also focused on developing an approach for increased information reporting by MNCs to tax authorities.

The paper also dwells on the issue of transfer pricing enforcement which has emerged as the risk factor for MNCs and tax authorities around the world. Continued growth and reach of multinational businesses across the world has created a complex web of cross-border commercial transactions among related companies, and the world's tax authorities want to ensure that they tax their rightful share of the income from those transactions. Transfer pricing is increasingly becoming a source of conflict between MNCs and the revenue authorities leading to a disputes and litigation. This has led to the creation of alternative dispute settlement mechanisms such as advance pricing agreements, safe harbours, among others.

According to the paper, nations are legislating the doctrine of General Anti-Avoidance Regulations in their tax code or strengthening their existing code to prevent the perceived avoidance of tax and tax evasion. Going forward, there could be increasing attempts to assess the global value chain in India which would require tax payers to maintain stronger documentation to avoid tax.

Another major area covered in the White Paper relates to indirect taxes and mentions that in the aftermath of the global financial crisis, countries are more inclined towards raising revenues through VAT. The paper recommends an early implementation of GST in India which would simplify and rationalize the current indirect tax regime in the centre and states, eliminate tax cascading and put the Indian economy on higher growth trajectory.

The paper calls for comprehensive reforms in GAAR, transfer pricing and indirect taxation. The aim is to bring clarity on the various provisions of international taxation which would address the concerns of industry and bring investor confidence back in the country. On GAAR, the paper recommends that it should be applied as an exception rather than as a rule, GAAR should not be applied in case SAAR is in place, among others. On transfer pricing, the paper maintains that a taxpayer needs to carefully consider his options of dispute resolution and determine the comparative benefits of adopting the safe harbour rules, continuing with the litigation or applying for APAs. In indirect taxes, the issues relate to recent apex court judgements, introduction of punitive provisions under customs, excise and service tax laws in the Union Budget, state VAT regime and challenges to FTAs.

Source : timesofindia.indiatimes.com