Primarily, many country enter into Double Taxation Avoidance Agreements (DTAA) with other countries to boost economic relations with that country thereby giving income exemptions or tax credit on doubly tax income of the residents of their respective country. Of late with advancement of trade, commerce and technology, these DTAAs are being used as instruments to avoid or reduce tax in wide spread manner. Even the Multinational Entities (MNEs) take shelter of double non-taxation of a transaction with the help of treaty shopping or treaty abuse i.e. by using treaty of third country without any substances what so ever. This is also known as Base Erosion and Profit Shifting (BEPS).
In this pretext, Governments of the many countries come together to find solutions of double non-taxation, avoidance or reduction of taxation i.e. BEPS by forming a task force at OECD/G20 (Organisation for Economic Co-operation & Developments) With the following objectives (i) identifies actions needed to address BEPS, (ii) sets deadlines to implement these actions and (iii) identifies the resources needed and the methodology to implement these actions.
Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises (MNEs) that exploit gaps and mismatches in tax rules to avoid paying tax. BEPS practices cost countries USD 100-240 billion in lost revenue annually. BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises. Engaging developing countries in the international tax agenda is important to ensure that they receive support to address their specific needs and can effectively participate in the process of standard-setting on international tax. Working together within OECD/G20 Inclusive Framework on BEPS, over 135 countries and jurisdictions are collaborating on the implementation of 15 measures or Action Plans to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment which are as under:
BEPS seeks to achieve two broad objectives; i) Taxation on digital economy which is still at discussion stage at OECD/G20 as mainly hurting tax interest of US governments; ii) Tax issues arising out of base erosion and profit shifting by using harmful tax practices and treaty shopping/abuse by MNEs, the actions plan of which already finalised presently at the stage of implementation at various level by amending bilateral tax treaties through bilateral negotiations or multilateral instruments (MLIs) by incorporating at least minimum standard in their tax treaties.
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