Global Tax Transparency: OECD 2024 Peer Review Highlights India’s Role in Combating Harmful Tax Practices
SDG 16: Peace, Justice, and Strong Institutions | SDG 17: Partnerships for the Goals
Ministry of Finance | Central Board of Direct Taxes (CBDT)
The OECD’s 2024 peer review report, ‘Harmful Tax Practices – 2024 Peer Review Reports on the Exchange of Information on Tax Rulings,’ evaluates the global implementation of the BEPS Action 5 minimum standard. This framework mandates the compulsory spontaneous exchange of information on specific tax rulings to prevent base erosion and profit shifting (BEPS). Globally, over 64,000 exchanges have occurred since the framework’s inception, with 2,300 new rulings issued in 2024 alone.
India’s Performance and Standing:
Positive Evaluation: India has met all aspects of the terms of reference for its information gathering process, including its review and supervision mechanisms.
Active Participation: During the year in review, India issued 269 rulings within the scope of the transparency framework.
Global Networking: India exchanged information on cross-border unilateral Advance Pricing Arrangements (APAs) with 41 jurisdictions, including major economic partners like the USA, UK, Germany, and China.
Identified Bottlenecks: Despite improvements, India continues to experience some delays in the exchange of information on future APAs due to administrative issues.
Policy Relevance
The report underscores India’s commitment to building a transparent and certain tax environment, which is essential for attracting foreign investment and maintaining global fiscal credibility.
Curbing Profit Shifting: The spontaneous exchange of information allows the Income Tax Department to perform better risk assessments on the corporate tax affairs of multinational entities operating in India.
Tax Certainty vs. Transparency: While tax rulings provide much-needed certainty for businesses, the transparency framework ensures that this certainty does not inadvertently mask harmful tax practices.
International Alignment: India’s adherence to these standards, supported by bilateral agreements with 103 jurisdictions, cements its position as a responsible leader in the G20-led global tax reform agenda.
What is the BEPS Action 5 Minimum Standard? Action 5 is part of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project. It aims to ensure that tax administrations have timely access to information about relevant tax rulings issued to specific taxpayers in other jurisdictions. This information is crucial for assessing potential tax avoidance risks and ensuring that profits are taxed where the substantive economic activities generating them are carried out.
While not an official member of the OECD, India is a key partner country and an active member of the OECD/G20 Inclusive Framework on BEPS, which includes over 140 jurisdictions.
Key Components of the Standard:
Transparency Framework: Mandates the spontaneous exchange of information on specific categories of rulings, such as preferential regimes and unilateral Advance Pricing Arrangements (APAs).
Substantial Activity Test: Identifies potentially harmful tax regimes by requiring that companies have a meaningful economic presence and perform core income-generating activities in a jurisdiction to benefit from its tax incentives.
Peer Review Process: Member jurisdictions undergo annual assessments to ensure they are meeting their commitments regarding information gathering, exchange, confidentiality, and statistics
Follow the full news here: Harmful Tax Practices – 2024 Peer Review Reports on the Exchange of Information on Tax Rulings