India on Thursday inked the OECD multilateral convention that seeks to check cross-border tax evasion by multinational companies.
Union Finance Minister Arun Jaitley signed the multilateral convention in Paris to implement tax treaty- related measures to prevent base erosion and profit shifting.
More than 65 countries, including India, signed the convention. More countries are expected to sign the convention in coming days, a finance ministry statement said.
"The Convention will modify India's treaties in order to curb revenue loss through treaty abuse and base erosion and profit shifting strategies by ensuring that profits are taxed where substantive economic activities generating the profits are carried out and where value is created," the statement added.
The Multilateral Convention is an outcome of the OECD/G20 Project to tackle Base Erosion and Profit Shifting (BEPS) which is resorted to by MNCs through tax planning strategies exploiting gaps and mismatches in tax rules.
It helps them artificially shift profits to low or no-tax locations, resulting in little or no overall corporate tax being paid. The BEPS Project identified 15 actions to address BEPS in a comprehensive manner, the statement said.
India was part of the Ad Hoc Group of more than 100 countries and jurisdictions from G20, OECD, BEPS associates and other interested countries, which worked on an equal footing on the finalisation of the text of the Multilateral Convention, starting May, 2015
The Convention enables all signatories to meet treaty- related minimum standards that were agreed as part of the final BEPS package, including the minimum standard for the prevention of treaty abuse under Action 6.
The Convention will operate to modify tax treaties between two or more parties to the Convention. The Convention will not function in the same way as an amending protocol to a single existing treaty, which would directly amend the text of the tax agreement.
Instead, it will be applied alongside existing tax treaties, modifying their application in order to implement the BEPS measures.