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Tax havens driven tax competition helps Indians park funds outside India

By Sunil Mitra, Secretary (Revenue), Govt of India

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IT is with pleasure that I join you this evening on occasion of launch of the portal of Taxindiaonline on International taxation in India. Let me extend a very warm greeting to all the delegates and speakers.

Nearly a year after the global financial crisis first started, we are beginning to see signs of stabilization and growth. In fact, in the last fiscal year (2009-10), economic growth of about 7% as a whole is quite impressive by global standards. However, economic stimulus measures taken to pump prime economies have led to budget deficits. As a result, government and tax administrations in India have been developing both policy and administrative responses to plug the widening gap between revenue collections and public expenditure. Many countries are implementing tax policy changes to raise revenue collections while ensuring that domestic competitiveness and jobs are not adversely affected. For instance, the Obama Administration announced sweeping reforms of tax deferral rules and to close foreign tax credit loopholes. In India, the government is in process of simplifying tax laws by finalizing the Direct Taxes Code and introducing a comprehensive Goods and Services Tax in India.

In the present era of globalization, continued expansion of cross-border business dealings and electronic commerce, have brought transfer pricing and international taxation under the spotlight. These sunrise areas of taxation are new focus areas both for augmentation of tax collections and for harmonization of rules and tax rates between the tax regimes of different countries.

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India introduced transfer pricing legislation in the year 2001. The administration of transfer pricing regulations has come of age in India both-in terms of quality of audits as well as the revenue generated for Government. Till date, the Directorate of Transfer Pricing in the Central Board of Direct Taxes has audited over 7500 cases leading to adjustments of Rs. 23,000 crore (approx. US$ 500 million). This is a significant achievement within a short period of time.

We have focused our efforts the administration of the provisions of international taxation by creating the Directorate of International Taxation in 2001. In this financial year, Directorate of International Taxation has mobilized revenues of Rs.17,00 crores which is a reflection of the effectiveness of our tax administration in the field of International taxation.

Tax competition driven by the presence of the tax havens have created an unhealthy situation and have helped Indian citizens to park undisclosed income outside India. The Government of India is committed to vigorously pursue all necessary steps in coordination with the respective countries on this issue. We are in the process of negotiation of exchange of information agreements with tax haven countries that are expected to facilitate this process.

The multifold increase in transactions of trans-national corporations also has an important implication for application of customs valuation law. The Income Tax and Customs departments have, therefore, structured interaction through an institutional mechanism for coordination and cooperation of transfer pricing matters between them. This coordination is both at the field level and at policy level. We intend to make use of technology for exchange of information in relevant cases between the two departments.

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Enhancing capacities of officers of both departments by focussed training and regular interaction is also vital. We will continue to build administrative capacity to better address issues of transfer pricing and customs valuation in transactions between related parties. The body of knowledge developed in this regard by World Customs Organization and the OECD will prove useful.

There also needs to be a continuous dialogue between Customs administrations, Income tax authorities and the business community in order that the efforts in this regard are not only aimed at improving compliance but also result in greater certainty for businesses and a more effective tax dispute resolution, to enable legitimate businesses to plan and conduct their activities smoothly.

In this context, the efforts of Taxindiaonline to launch a comprehensive tax portal on International taxation, transfer pricing and indirect taxes is an important step in disseminating judicial pronouncements, tax provisions, etc. to 'tax administrators, taxpayers and tax advisers'. I compliment the management of Taxindiaonline for having taken this initiative and congratulate them on the tenth anniversary of their website.

(Also See TIOL's Tenth Anniversary Celebrated in Style )


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