India: BEPS - An Indian Perspective

IMPLEMENTATION OF BEPS ACTION PLAN IN INDIA (to the extent made applicable out of the 15 Action Plans) 

1. ACTION PLAN 1: Tax Challenges of the Digital Economy 

Adoption of Equalization Levy: India has introduced Equalization Levy through Finance Act, 2016 which is made applicable on specified services i.e. Online Advertisement, Provision of digital advertising space or any other facility for online advertisement. Every person, being a resident carrying on business or profession in India or a non-resident having permanent establishment in India, shall deposit the levy at 6% on the considerations payable to non-resident not having permanent establishment in India. Such levy does not apply where the aggregate amount payable to nonresident does not exceeds INR 100,000 in a year. 

2. ACTION PLAN 4: Limit base erosion via interest deductions and other financial payments.

The deduction for any expenditure by way of interest or of similar nature incurred (whether paid or payable) by an Indian company or the PE (Permanent Establishment) of a foreign company in respect of debt borrowed from: Its non-resident associated enterprises; or Third-party non-resident lender if an associated enterprise provides an implicit or explicit guarantee to such lender would be restricted to 30% of its earnings before interest, taxes, depreciation and amortization (EBITDA).Further threshold of interest expenditure of INR 1 crore is provided to carve-out entities which have a low level of interest expense. The interest expense which is disallowed can be carried forward up to 8 immediately succeeding tax years. 

3. Action Plan 6 Prevention of Treaty Abuse- The General Anti Avoidance Rules (GAAR)

The GAAR has been introduced in the Indian tax law, and is to be implemented from 1 April 2017. The Indian GAAR overrides tax treaties, which is consistent with the OECD commentary on anti- avoidance rules. 

The GAAR would allow the revenue authorities to analyze and go deeper into the transactions and/ or arrangements (e.g. judging their ownership structures, beneficial ownerships, voting rights, etc.). The GAAR and Limitation of Benefit/ Principle purpose test rule may impact intermediate holding companies for investing into India, which lack substance and have been interposed only to avail tax treaty benefits. 

4. ACTION PLAN 13: Transfer Pricing Documentation and Country- by- Country Reporting 

I. Master File: It is intended to provide a high-level overview of the MNE groups’ business, including the nature of its global business operations, value drivers, supply chain analysis, intangibles employed, financial arrangements, overall transfer pricing policies, and financial and tax positions. 

II. Country-by-Country (CbC) report: 

A snapshot of the CbC regulations is provided below

5. ACTION PLAN 15 : Developing a Multilateral Instrument (MLI) to Modify Bilateral Tax Treaties 

MLI is a single convention where modification of existing bilateral tax treaties to efficiently implement measures developed by BEPS. MLI does not need individual renegotiating of each bilateral treaty. On June 7, the MLI was signed by India. As provisional list India has notified all its 93 double tax avoidance treaties indicating the intention of applying the selected MLI provisions to all these treaties.MLI is a single convention where modification of existing bilateral tax treaties to efficiently implement measures developed by BEPS. MLI does not need individual renegotiating of each bilateral treaty. On June 7, the MLI was signed by India. As provisional list India has notified all its 93 double tax avoidance treaties indicating the intention of applying the selected MLI provisions to all these treaties.

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