As you are aware, the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) recently released Blueprints for public consultation on Pillar One and Pillar Two to develop a consensus-based solution to address tax challenges arising out of digitalisation of the economy.
NASSCOM has been closely following the developments regarding the BEPS 2.0 project, considering its likely impact on the technology industry and made a detailed representation to the OECD on the public consultation document. Based on our submission, we were invited by the OECD to be part of the public consultation event for Panel Two which focussed on “Tax Certainty and Administration”.
Suchint Majmudar, Advisor to NASSCOM and Partner at Deloitte Haskins & Sells, represented NASSCOM at the OECD Panel Two discussion, which focussed majorly on the ways and means through which the objective of tax certainty and avoidance of double taxation can be achieved. During the discussion, NASSCOM highlighted India’s experience with tax certainty and administration as per the following:
- The Advance Pricing Agreement (APA) program has been progressing well and extends to Bilateral APAs (BAPA) as well.
- Experience in terms of bilateral Mutual Agreement Procedures (MAP) has also been good for alleviating double tax.
- Authority for Advance Ruling (AAR) program has bandwidth constraints and very time consuming – results are well after the transaction
Following learnings and recommendations were also highlighted during the discussion:
- Constructive approach (understanding the business, working towards resolution) and timeliness (time bound certainty) are the two key expectations from the consensus based solution of the OECD;
- The Panel approach (review and determination) proposed in Pillar 1 Blueprint appears reasonable. MAP experience is that tax administrations can resolve disputes. Hence, panels of multi-country tax administrations can be effective in this connection;
- The objective of the solution is to obtain certainty for companies on where they should pay taxes and how much. Further, it was emphasized that once certainty is obtained, it can be extended for multiple years;
- In case any deadlock is sought to be handled by the determination panel – this can be a separate group of tax administrations, independent of review panel. Officials from Competent Authority are equipped to handle such negotiations;
- Inclusion of technical experts from industry in an advisory panel that will be adjunct to the Review Panel and Determination Panel can be considered. To be clear, the Review and Determination Panels will comprise of tax administrators and the Expert Panel will function in an advisory capacity to the Review and Determination Panels;
- As an example, there is a need for improved certainty on the scope of Automated Digital Services (ADS), particularly in the context of certain automated services in cloud computing;
- Amount B should normally be subject to BAPA due to use of Arms’ Length Principle (ALP) and possible issues arising from amounts beyond Amount A; and
- From a development and administration point of view, the new regime should encourage studies to develop better understanding of user activities in various jurisdictions. For example, to examine the economic nexus due to user activity in key market jurisdictions, studies could be conducted to understand user contribution, value of data as an input to businesses, value of users as an aspect of demand or in creating the market and the real indicators of participation of an enterprise in the economic life of a market for the purpose of designing tax policies.
We will continue to engage with the OECD to highlight issues from Indian IT-BPM industry perceptive.