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Created on Sunday, 10 February 2019 08:51
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(Edited Image Courtesy: OECD Brochure)
Corporate income tax (CIT) reforms have lately come under intense gaze from different quarter across the world. There is near-unanimity among diverse stakeholders that the present CIT system is outdated. It has to be replaced with a new one.
Many consider Base Erosion and Profit Shifting (BEPS) as patchwork solution to the problems caused by the existing system. Some are skeptical about the emerging BEPS Version.2.
The entities chipping into the reforms broth include International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), revenue administrations, academics and leading NGOs.
The last group is also operating collectively under The Independent Commission for the Reform of International Corporate Taxation (ICRICT), a group of certain renowned economists formed in 2015.
One can divide reforms into two categories: 1) the reforms within the existing CIT system that have been accelerated by several nations. Apart from rate reductions, expansion of CIT base, such reforms have seen elimination of minimum alternate tax in the United States & Belgium. The countries spearing reforms have also adopted new approaches towards taxation of multinationals.
2) The 2nd set of reforms call for reinventing the entire CIT framework. These seek a new format for taxing corporate income with few alternatives on the agenda.
Read more: Corporate Tax Reforms Beverage Becoming Stronger
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Created on Friday, 23 November 2018 03:07
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(River Erosion.Edited Image Courtesy: Central Water Commission)
Base Erosion and Profit Shifting (BEPS) project is facing massive erosion threat on multiple fronts. The four main risks to the Project are: 1) absence of inclusivity; 2) complex challenges in plugging revenue leakages under existing tax treaties; 3) avoidance and evasion in booming digital economy due to problems in engineering customized taxation and 4) Divisive impact of different model tax conventions. All of them are supposed to achieve BEPS objectives.
Take first the inclusivity. Only 15 countries have so far ratified Multilateral Convention to Implement Tax Treaty Related Measures to prevent BEPS / Multilateral Instruments (MLI). As many as 76 countries/jurisdictions had signed or formally expressed their intention to sign on 7th June 2017.
So far only 84 out of over 202 tax jurisdiction have joined BEPS Convention. The United States & Brazil continue to shun MLI. The 84 signatories cover over 1,400 bilateral tax treaties, which is 41.17% of total 3400 treaties signed by all tax jurisdictions.
The bilateral treaties specified in ratification instruments would be subjected to match-making, fast-track amendments through MLI toolkit. All 1400 treaties would actually come under MLI cover only when 69 out of 84 signatories submit their ratification/approval to Organisation for Economic Co-operation and Development (OECD).
This may take years as certain countries would have to take approval from their respective Parliament. Each signatory submits its instrument of ratification with many reservations about different articles of 49-page MLIs convention.
Reservations from all signatories can be perceived as thousands of pinpricks in BEPS umbrella. The word ‘Reservation’ appears 105 times in the text of the Convention.
Read more: Erosion’ Risks can Transform BEPS into a Lame Duck
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Created on Thursday, 05 April 2018 06:23
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(Edited Image Courtesy: OECD)
Data Analytics (DA) is making headlines for varied reasons. They range from misuse of social media’s big data to influence voters/consumers to catching tax deviants for boosting revenue to fund growth.
Governments including tax administrations across the world are at different stages of unraveling the potential of data analytics in boosting revenue.
As put by McKinsey, “Digitization creates a massive trail of data that can support more-effective revenue and payment programs. There is an emerging consensus globally that governments can and should use this data to reduce revenue leakage, subject to strong privacy constraints prescribed by policy makers”.
In a report titled ‘The trillion-dollar prize: Plugging government revenue leaks with advanced analytics’, McKinsey notes that about 20% of government revenues worldwide, or about $5 trillion goes missing every year.
It believes that Governments can plug 20% of these leakages through application of big data analytics and related efforts over several years. This, thus, constitutes a trillion-dollar opportunity globally to ramp up tax revenue.
India, which is new as compared to the West in the Big Data game, is harvesting preliminary successes in both direct and indirect taxes domain.
Read more: Data Analytics Emerges as Unique Glue for Plugging Revenue Leakages
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Created on Friday, 05 January 2018 05:04
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It Also Needs To Craft Pact On Lobbying Regulation Law
(Edited Image Courtesy: Transparency International)
“Lobbying Frenzy Begins on Tax Bill”. “Lobbyists Swarm Congress to Protect Interests in GOP (grand old party/Republican party) Tax Bill”. “The 4 companies that lobbied most on tax overhaul — and what they got for it”. “We know more details about the final GOP tax bill - thanks to a lobbyist who sent it to a top Democratic senator”.
Such Hard-hitting headlines were splashed by the US media during November and December 2017 to highlight how legalized lobbying works for facilitating tax incentives and for blocking/delaying/diluting any potential adverse taxation.
The media coverage of Tax Reforms initiated by Trump Administration should spur debate over corporate lobbying for tax expenditures that goes across the world. Such practice also goes on in 22 countries that regulate lobbying and in other nations that don’t.
The debate is necessary to turn the torchlight on prospects of the new US law, Tax Cuts and Jobs Act (TCJA), triggering similar tax reductions by other investment-attracting countries. The possibility of new wave of tax competition is on the horizon.
Read more: OECD Should Draw Line Between Good And Bad Tax Competition
