India USA CbC pact – A step against Tax Evasion

By admin March 30, 2019 11:27

India USA CbC pact – A step against Tax Evasion India and USA have recently signed an agreement on the exchange of Country by Country (CbC) Reports. It will permit the automatic exchange of tax-related information between India and The USA. Reports on or after January 1, 2016, will be shared. CbC Report is filed by parent organization operating in any of the participating countries. What is a CbC Report? A CbC report aggregates country-by-country information relating to the global allocation of income, taxes paid, and certain other indicators of an MNC. It also contains a list of all the group companies operating in a particular jurisdiction and the nature of the main business activity of each such constituent entity. In short, the report provides information about

  • The name of each country where it operates.
  • The names of all its subsidiaries and affiliates in these countries
  • The performance of each subsidiary and affiliate, without exception.
  • The tax charge in its accounts of each subsidiary and affiliate in each country
  • Details of the cost and net book value of its fixed assets in each country.
  • Details of its gross and net assets for each country

Prerequisites for CbC Reports Exchange Agreement 1. Bilateral Competent Authority Arrangement 2. Double Tax Avoidance Agreement or Convention on Mutual Administrative Assistance in Tax Matters Bilateral Competent Authority Arrangement – It is a bilateral agreement between the United States and the treaty partner to clarify or interpret treaty provisions. It provides a standardised and efficient mechanism to facilitate the automatic exchange of information in accordance with the Standard for Automatic Exchange of Financial Information in Tax Matters Double Tax Avoidance Agreement (DTAA) – India and the USA have a DTAA that comprehensively addresses and eliminates the incidence of double taxation of income on persons having income in both countries.  Read Also: Do Mission Shakti Violates International Space Laws & Treaties Taxes covered under India – US DTAA In India, income-tax including any surcharge and surtax are included while it does not apply to the income tax on undistributed income of companies, imposed under the Income Tax Act. GST and indirect taxes are also not covered. In the USA, the Federal income taxes excluding the accumulated earnings tax, the personal holding company tax, and social security taxes. Also, the exercise taxes imposed on insurance premiums paid to foreign insurers and with respect to private foundations are covered under DTAA. Benefits of CbC Reports Exchange Agreement

  • Subsidiaries of US-headquartered companies can now do local filing of the CbC Reports, thereby reducing the compliance burden.
  • Tax avoidance, cross border tax evasion and round-tripping can be tackled.
  • Money from unauthorised sources can be checked.


1. Tax Avoidance – Tax avoidance is the legal usage of the tax regime to one’s own advantage to reduce the amount of tax that is payable by means that are within the law.

2. Tax sheltering – It is very similar to tax avoidance, although unlike tax avoidance tax sheltering is not necessarily legal. 3. Tax Evasion – Tax evasion is the illegal evasion of taxes by individuals, corporations, and trusts. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities

4. Round Tripping – In the context of black money, money leaves the country through various channels such as inflated invoices, payments to shell companies overseas, the hawala route and so on. After cooling its heels overseas for a while, this money returns in a freshly laundered form; thus, completing a round-trip.

5. Base Erosion and Profit Shifting – It refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Conclusion India has already signed the Multilateral Competent Authority Agreement (MCAA) for Exchange of CbC Reports under the edges of OECD, which has enabled the exchange of CbC Reports with 62 jurisdictions. A bilateral agreement with the US has further strengthened India’s approach against tax evasion. It is also depicting India’s deeper relations with the USA which is the need of the hour when there was a small tussle observed in trade-related matters between the two countries in recent months. Earlier Defence Pacts (COMCASA and LEMOA) and now CbC pact is a welcome step in the right direction.

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By admin March 30, 2019 11:27