India and Brazil Signed Amended DTAC
- 07 Nov 2019
- 4 min read
Why in News
Recently, the Union Cabinet has approved the signing of the Protocol amending the Convention between India and Brazil for the Double Taxation Avoidance Convention (DTAC).
- The amendments aim to implement the recommendations contained in the G20 OECD Base Erosion and Profit Shifting Project (BEPS).
- It will also help to streamline the existing DTAC with international standards which will help to provide tax certainty to investors and businesses of both countries.
- The amending protocol will augment the flow of investment through the lowering of tax rates and fees for technical services.
Double Tax Avoidance Agreements (DTAAs)
- A DTAA is a tax treaty signed between two or more countries.
- Its key objective is that tax-payers in these countries can avoid being taxed twice for the same income.
- It applies in cases where a taxpayer resides in one country and earns income in another.
- The relief is provided by exempting income earned abroad from tax in the resident country or providing credit to the extent taxes have already been paid abroad.
- It can either be comprehensive to cover all sources of income or be limited to certain areas such as taxing of income from shipping, air transport, inheritance, etc.
- DTAAs are intended to make a country an attractive investment destination by providing relief on dual taxation.
Base Erosion and Profit Shifting (BEPS)
- BEPS is a term used to describe tax planning strategies that exploit mismatches and gaps that exist between the tax rules of different jurisdictions.
- It minimizes the corporation tax that is payable overall, by either making tax profits ‘disappear’ or shift profits to low tax jurisdictions where it is little or no genuine activity.
- BEPS takes advantage of different tax rules operating in different jurisdictions.
- BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs).
- The BEPS initiative is an OECD initiative, approved by the G20, to identify ways of providing more standardized tax rules globally.
OECD/G20 Base Erosion and Profit Shifting (BEPS)Project
- In 2013, OECD and G20 countries adopted a 15-point Action Plan to address BEPS.
- The OECD/G20 BEPS Project aims to create a single set of consensus-based international tax rules to address BEPS, and hence to protect tax bases.
- In 2016, the OECD and G20 established an Inclusive Framework on BEPS. Over 100 countries and jurisdictions have joined the Inclusive Framework.
Difference Between Convention, Agreement, and Protocol
- Agreement: It is a negotiated and usually legally enforceable understanding between two or more legally competent parties.
- A binding contract can (and often does) result from an agreement.
- Convention: It is a formal agreement between States. These are normally open for participation of a large number of States.
- The generic term ‘convention’ is thus synonymous with the generic term ‘treaty’.
- Protocol: A protocol is an agreement that negotiators formulate and sign as the basis for a final convention or treaty.