A Decade of the Indian Advance Pricing Agreement Programme: Achievements and Challenges
By Priyanka Mashelkar and Apoorv Tiwari
India’s Advance Pricing Agreement (APA) programme was introduced in 2012 with the objective of reducing transfer pricing disputes and providing certainty to taxpayers on their international transactions. In the last decade or so, the programme has proven to be a successful dispute mitigation and resolution mechanism. The authors use data and statistics from a recently released report by the Central Board of Direct Taxes (CBDT) in India to highlight the success of the programme, while also acknowledging the challenges ahead, especially as taxpayers’ expectations from the programme continue to rise.
Impact of a Minimum Tax Rate under the Pillar Two Solution on Small Island Developing States
By Kuldeep Sharma
The Research Paper commences with an overview of Pillar One and Pillar Two followed by detailed discussions on salient provisions of Pillar Two.
Pillar Two is envisaged to have a widespread impact on Small Island Developing States (SIDS) which are a distinct group of 38 United Nations (UN) Member States and 20 Non-UN Members/Associate Members of UN regional commissions that are exposed to unique social, economic and environmental vulnerabilities. In all, 36 SIDS that are members of the Group of Seventy-Seven (G-77) have been analysed, namely, Antigua and Barbuda, Bahamas, Bahrain, Barbados, Belize, Cabo Verde, Comoros, Cuba, Dominica, Dominican Republic, Fiji, Grenada, Guinea-Bissau, Guyana, Haiti, Jamaica, Kiribati, Maldives, Marshall Islands, Mauritius, Federated States of Micronesia, Nauru, Papua New Guinea, Samoa, São Tomé and Príncipe, Seychelles, Singapore, Solomon Islands, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Timor-Leste, Tonga, Trinidad and Tobago, and Vanuatu.
The BEPS Monitoring Group submitted comments to the OECD on the consultation draft proposals to provide tax certainty for Amount A of Pillar One. Abdul Muheet Chowdhary, Senior Programme Officer of the South Centre Tax Initiative, was a contributor.
The BEPS Monitoring Group submitted comments to the OECD on the draft proposals for tax certainty on issues related to Amount A in Pillar One. Abdul Muheet Chowdhary, Senior Programme Officer of the South Centre Tax Initiative, was a contributor.
The South Centre welcomes the UN Tax Committee’s invitation of public comments into its draft agenda and four-year work plan. By engaging the public in preparing the work plan, the UN Tax Committee’s work can be more responsive to the needs of developing countries, and of UN Member States as a whole. By stating that “the goal to ensure that the Committee’s agenda is practical and relevant to developing countries and includes the most pressing challenges they face in tax policy and administration” the Committee has shown a laudable intent which is also in line with its mandate, which is to give special attention to developing countries. The South Centre offers its written comments on the three topics on which inputs have been requested. These have been prepared based on consultation with the South Centre’s Member States, which are exclusively developing countries.
Base Erosion and Profit Shifting in the Extractive Industries
By Danish and Daniel Uribe
Developing countries with significant natural resources have not fully utilised them for financing their development aspirations. Extractive industries and the revenue generated from their extractive activities need to constitute a larger share of domestic resource mobilisation. However, the sector remains beset with massive tax base erosion and profit shifting by large multinational companies. This policy brief therefore looks at the extractive industries, and the potential impact of their practices on the national policies and regulations in developing countries. It further also considers some current initiatives at the international level for enabling countries to obtain more revenue from natural resource extraction, and offers some observations on the policy options available to developing countries.
The Role of South-South Cooperation in Combatting Illicit Financial Flows
By Manuel F Montes
Developing countries bear the brunt of costs from illicit financial flows (IFFs). These losses are the result of the facilities that the global system provides transnational companies, operating in multiple tax jurisdictions, to move their profits to favorable locations. International cooperation has been seen to be a key ingredient in restricting IFFs. However, a difference in interests in the treatment of many types of transactions between developed and developing countries is an obstacle to a fast solution of the problem. Developing countries must seek to seize the initiative to restrict their losses from IFFs. They can deploy various joint and concerted actions, within the umbrella of the principles of South-South cooperation for this purpose.
International Tax Cooperation: Perspectives from the Global South
About the Book:
A substantive reform of the global tax system involving a variety of multilateral platforms is underway. The question is not whether the tax standards and practices will change, but in which direction.
Developing countries have long sought changes in rules, standards and procedures shaping the allocation of taxing rights among sovereign states. In the wake of the 2008-2010 Great Recession, developed country governments engaged in massive public sector layoffs and channeling enormous public resources to bail out large financial companies and their wealthy investors. The Panama Papers, the Paradise Papers, the Lux Leaks became household words in the United States and Europe because of the journalistic coverage. Other scandals, such as the “cum/ex” fraud in Germany involving a loophole in the taxing of dividend receipts were less known but just as materially significant. Tax reform, particularly as it applied to the treatment of corporations working in multiple tax jurisdictions, thus became not only a problem of developing countries but an issue of global concern.
Inequality is one of the greatest challenges that the world needs to face. Inequality is intimately linked with poverty. Although there has been progress in reducing poverty, a large part of the global population (overwhelmingly living in developing countries) is still denied access to a dignified life. While no poverty and reduced inequality are two of the outstanding Sustainable Development Goals, these and other goals are unlikely to be achieved by 2030. In fact, inequality is on the rise. Changing this situation will certainly require significant efforts at the national and regional level. But it also requires an international architecture that supports those efforts by respecting the policy space that countries need and coordinating constructive actions within the multilateral system. The current initiatives to ‘reform’ this system will only be legitimate if they recognize the gaps in the levels of development and contribute to effectively address them under a fair, pro-development system of rules. Please see last month’s SouthViews on “Understanding global inequality in the 21st century” by Jayati Ghosh, development economist and Professor of Economics at Jawaharlal Nehru University.
Improving Transfer Pricing Audit Challenges in Africa through Modern Legislation and Regulations
By Thulani Shongwe
Auditing multinational enterprises often involves a broad range of complex technical issues, and transfer pricing (TP) is often the most important one. This policy brief looks at some of the key aspects of the modern TP legislation and illustrates how different drafting of regulations can assist in additional revenue collection as well as increased compliance. It further provides practical examples from real cases to show where poor legislation has given rise to tax planning and to profit shifting. Lastly, the brief offers practical solutions to some of the transactions illustrated through the African Tax Administration Forum (ATAF) Suggested Approach to Drafting Transfer Pricing Legislation.
Interaction of Transfer Pricing & Profit Attribution: Conceptual and Policy Issues for Developing Countries
By Dr. Vinay Kumar Singh
Till 2010, model tax conventions treated profit attribution to permanent establishments and transfer pricing under different articles, and profit attribution under Article 7 allowed sales to be taken into account both in the direct accounting method as well as the indirect apportionment method. However, the revised Article 7 in the 2010 update of the OECD Convention approximated profit attribution with transfer pricing and omitted the option of apportionment, thereby undermining sales and contributions made by market jurisdiction to business profits. When a tax treaty retains Article 7 based on the UN Convention or the earlier OECD Convention, Contracting States can take sales into account and also opt for apportionment. Developing countries need to fully understand these implications of Article 7 in their tax treaties, and opt for informed choices for transfer pricing and profit attribution to permanent establishments, including apportionment that takes sales into account.
About the Book: