Why is it in the news?

Cabinet has approved protocol amending the convention between India and Brazil for the avoidance of double taxation.


Double Taxation

  • It is a  tax mechanism referring to income taxes paid twice on the same source of income that can occur when income is taxed at both the corporate level and personal level.
  • Double taxation also can occur in international trade or investments too when the same income is taxed in two different countries.

Base Erosion and Profit Sharing

  • Base erosion and profit shifting (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
  • It is due to multinational enterprises exploiting gaps and mismatches between tax systems of different countries.
  • Developing countries' higher reliance on corporate income tax means they suffer from BEPS disproportionately.

Need for the Amendment

  1. Double Taxation Avoidance Convention (DTAC) between India and Brazil was signed on 26th April, 1988.
  2. The existing Double Taxation Avoidance Convention (DTAC) has become very old.
  3. There is an urgent need to amend the conventions as to bring it in line with international developments
  4. There is also an urgent need to implement the recommendations contained in the G20 OECD Base Erosion and Profit Shifting Project (BEPS).