[Answered] Discuss the broader implications of India’s approach to renegotiating its tax treaties on the global tax landscape. Consider the role of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative and the global minimum tax proposal in shaping these reforms.

India’s approach to renegotiating its tax treaties has significant implications for the global tax landscape, particularly in the context of ongoing international efforts to address tax avoidance and profit shifting. Base erosion and profit shifting (BEPS) is the strategy used by numerous multinational corporations to transfer their profits to jurisdictions with lower or non-existent tax rates, thereby engaging in tax evasion.

Implications

• Impact on International Taxation Norms: India’s efforts to renegotiate tax treaties reflect a broader trend toward strengthening international tax norms to prevent tax avoidance and profit shifting by multinational corporations (MNCs). By renegotiating treaties to incorporate provisions aligned with BEPS recommendations, India is signaling its commitment to combating tax evasion and ensuring that MNCs pay their fair share of taxes in the countries where they operate.
• Alignment with BEPS Recommendations: The OECD’s BEPS initiative aims to address gaps and mismatches in international tax rules that allow MNCs to artificially shift profits to low-tax jurisdictions. India’s renegotiation of tax treaties to incorporate BEPS recommendations, such as the introduction of anti-abuse clauses, transfer pricing rules, and measures to prevent treaty abuse, aligns its tax regime with international best practices and fosters greater transparency in cross-border transactions.
• Impact on Investment and Economic Growth: India’s renegotiation of tax treaties may impact cross-border investment and economic growth by influencing the tax treatment of foreign investors and MNCs operating in the country. While stricter tax provisions may increase tax revenues for India and level the playing field for domestic businesses, they could also potentially deter foreign investment if perceived as overly burdensome or complex.
• Interaction with Global Minimum Tax Proposal: The global minimum tax proposal, spearheaded by the OECD and endorsed by many countries, including India, seeks to establish a minimum effective tax rate for MNCs to prevent profit shifting to low-tax jurisdictions. India’s renegotiation of tax treaties in line with BEPS recommendations and the global minimum tax proposal reinforces its commitment to combating tax avoidance and supporting international efforts to create a more equitable and sustainable tax framework.
• Deterrence of Treaty Shopping: Treaty shopping, wherein MNCs exploit tax treaties between countries to minimize their tax liabilities, has been a significant concern for tax authorities worldwide. By renegotiating tax treaties to include anti-avoidance measures and limiting treaty benefits to genuine taxpayers, India seeks to deter treaty shopping and prevent the misuse of tax treaties for tax avoidance purposes.

Conclusion

Recent amendments to the India- Mauritius treaty show that serious revenue reforms are under consideration to reform International tax law. Rules like the global minimum tax and subject-to-tax rule (STTR) show that countries are serious about making changes to the BEPS program.