However, implementation remains the key to the success of any law. “Implementing this convention in its true spirit and appropriate understanding by tax authorities is important,” says Nangia. Provisions of this convention should not become a tool of harassment and targeting genuine business transactions and structures, he adds.
Will there be special provisions in bilateral treaties to ensure that there is no treaty abuse to evade taxes?
Many bilateral treaties contain “Limitation on Benefits” (LoB) provisions to prevent treaty abuse for evading taxes. “Even after the implementation of multilateral instruments, such anti-abuse provisions in bilateral treaties shall continue to remain in force,” says Nangia.
Further, India has also proposed to adopt the simplified LoB provision, which shall restrict the applicability of a tax treaty to a resident as prescribed in multinational convention, points out Rohera. The emphasis of these provisions is on the ‘principal purpose’ of any arrangement or transaction undertaken through a particular jurisdiction.
Will dispute resolution, especially those related to transfer pricing, become faster?
Dispute resolution in India is subject to provisions under domestic tax laws and the multilateral convention is not expected to assist in a faster dispute resolution, including transfer pricing disputes, says Nangia.
“In bilateral treaties/multilateral convention, the only way to speed up dispute resolution is through the ‘Mutual Agreement Procedure’ (MAP) between competent authorities of contracting countries,” he adds. Experts point out that India has expressed reservations on some aspects of the MAP.
How will the convention impact the status of permanent establishment (PE), a key area of dispute between tax payers and revenue departments?
Artificially avoiding PE status by using favourable treaty provisions and taking shelter under “exclusionary provisions” have been some of the focus areas of the BEPS action plan. Part IV of the multilateral instrument lays down suggested changes in the interpretation of PE under different situations.
“Guidance has now been provided on some specific situations namely, commissionaire arrangements, specific activity exemptions and splitting up of contracts which, going forward, should plug loopholes for artificial avoidance of PE. However, the multilateral instrument does not change any rules on attribution of profits to such PE,” explains Rohera.