India, China sign global pact to help tax MNCs

In a move aimed at ensuring that multinational corporations don’t get away without paying taxes anywhere, India and China have joined a club of countries that agreed to automatically share information, laying bare the structure of operations of these companies.

Details:

•  The agreement was signed as part of the global initiative called Base Erosion and Profit Shifting that is meant to ensure that MNCs do not get away without paying taxes.
• Apart from these two Asian countries, Canada, Iceland, Israel and New Zealand have also signed the Multilateral Competent Authority agreement for the automatic exchange of Country-by-Country reports, bringing the total number of signatories to 39 countries.

Benefits:

This agreement will help ensure that tax administrations obtain a complete understanding of how multinational enterprises structure their operations, while also ensuring that the confidentiality of such information is safeguarded.

Background:

Several international giants including Apple, Google and Starbucks are among companies that are seen to be indulging in aggressive tax planning to minimise their burden. Companies resort to multi-layering of their operations and use tax treaties in what government sees as denying them their share of revenue.