Why is it in the news?
Cabinet has approved protocol amending the convention between India and Brazil for the avoidance of 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
- Double Taxation Avoidance Convention (DTAC) between India and Brazil was signed on 26th April, 1988.
- The existing Double Taxation Avoidance Convention (DTAC) has become very old.
- There is an urgent need to amend the conventions as to bring it in line with international developments
- There is also an urgent need to implement the recommendations contained in the G20 OECD Base Erosion and Profit Shifting Project (BEPS).