09/03/17

India: OECD invites BD to join combat against fund flight

Intergovernmental body OECD has requested Bangladesh to sign a multilateral convention to implement tax-treaty-related measures in a global combat to prevent base erosion and profit shifting, especially to tax havens, reports The Financial Times. 

Tax avoidance through Base Erosion and Profit Shifting (BESP) is being considered a global problem which requires global solutions, says OECD.

A large group of countries, including G20 and OECD (Organisation for Economic Cooperation and Development) countries, and developing nations have worked out a comprehensive package of effective measures against BESP, says a letter sent to Finance Minister AMA Muhith recently.

"It is crucial for all jurisdictions to sign the instrument together in order to close loopholes in treaties quickly and in a harmonised matter. Your government's signature of the multilateral instrument will send a strong signal of its commitment to prevent BESP and create a better functioning tax system," OECD secretary-general Angel Gurria wrote.

Mr Gurria invited Mr Muhith to attend a high-level ceremony in Paris in June to sign the instrument and said the OECD is ready to provide all necessary technical support in the process of signing, ratification, and implementation of the convention.

He requested a confirmation from Mr Muhith by March 10 regarding Bangladesh's intention to sign the multilateral instrument.

A senior official at the Ministry of Finance (MoF) told the FE that the officials concerned were working on the matter to decide about signing the treaty.

The tax-treaty-related measures are aimed at countering the abuse of bilateral tax treaties, improving dispute resolution, and updating the global tax-treaty network which is composed of more than 3000 bilateral treaties, according to a document forwarded by OECD to the ministry.

It said a swift and simultaneous implementation of the tax-treaty-related measures is crucial to combating tax avoidance by multinational enterprises (MNEs). The BESP is estimated to cause global revenue loss of US$100 to $240 billion per annum.

The multilateral instrument provides the opportunity to modify existing treaties without the need for costly and time-consuming bilateral renegotiations while providing flexibility to accommodate different tax policies.

After signing the instrument, the countries have to provide list of the bilateral treaties to be covered by the convention and of the reservations and options they intend to choose. The multilateral convention will modify tax treaties between two or more parties, the document says.

The BESP refers to tax-planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low-or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.

In recent years wealthy people have reportedly invested billions of dollars in tax heavens by siphoning off money from their countries. Last year, the famous Panama Paper leak unearthed a large investment in offshore companies by wealthy and influential people to avoid tax.