Innovative and transformative redesign of international tax architecture to address tax challenges arising from the ever-increasing digitalisation and globalisation of the economy has been the most dominant focus of the global tax agenda of G20 for the better part of the last decade. The basic rules for allocation of taxing rights between countries, framed in 1920s, have been rendered ineffective by digitalisation of economy.
The political agreement on the two-pillar solution to address tax challenges arising from the digitalisation of economy, reached in October 2021 among 137 members of OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Inclusive Framework), is path-breaking for providing new taxing rights to market jurisdictions. Further, the work of the G20 on enhancing tax transparency has led to great strides being made through the establishment and adoption of Automatic Exchange of Information under the Common Reporting Standard (AEOI-CRS).
G20 continues to persevere to strengthen the automatic exchange of information frameworks to ensure that newly emerging risks to global tax transparency are effectively countered, with the Crypto-Asset Reporting Framework (CARF) being the latest. The efforts at G20 International tax workstream have guided and informed the tax policy discourse that multilateralism is the norm to advance international tax cooperation. The international tax architecture is witnessing an epochal transformation in this year of 2023. Indian Presidency has played a pivotal role in galvanising the inclusive framework efforts towards achieving a fair, sustainable and modern international tax system.
The three flagship priorities that have been actively pursued for international taxation under the Indian G20 Presidency are: (a) Monitoring the progress of the G20/OECD inclusive framework’s two-pillar solution to address the tax challenges arising from digitalisation of the economy; (b) Tax & capacity building; and (c) Enhancing tax transparency. Multilateralism embodied in the theme of India’s G20 Chairmanship - “One Earth, One Family, One Future” – has been the catalyst and prime mover of all the flagship priorities for International Tax Agenda for the year 2023.
Starting with the first G20 Finance Ministers and Central Bank Governors (FMCBG) meeting in Bengaluru on February 24 and 25, G20 FMCBGs have continued to play a central leadership role in advancing the swift implementation of the two-pillar international tax package and making progress on other areas of international tax reform, including capacity building and enhancing tax transparency. In the third G20 FMCBG meeting under the Indian Presidency held on July 17-18 in Gandhinagar, Gujarat, G20 FMCBGs welcomed the delivery of a text of a Multilateral Convention (MLC) on Amount A, significant progress of work on Amount B and the completion of the work on the development of the Subject to Tax Rule (STTR) and its implementation framework as set out in the July 2023 outcome statement of the inclusive framework.
The FMCBGs also welcomed the launch of the pilot programme of the South Asia Academy in India for tax and financial crime investigation in collaboration with OECD. With this first step, the Indian Presidency has taken the lead for building capacity in tax and financial crime investigation in South Asian region in collaboration with OECD. The negotiations and discussions during all the Ministerial and Deputy level meetings on international tax agenda in the finance track witnessed active multi-stakeholder dialogue on all the priorities laid out by the Presidency. The ‘oneness’ embodied in the Presidency theme of “Vasudhaiva Kutumbakam” has been an enabler in building consensus though the Presidency year and has refreshingly reinvigorated multilateral efforts on international tax cooperation.
Implementing global tax transparency standards has seen significant developments over the last few years. G20 has played a sterling role in shaping the tax transparency agenda. While AEOI-CRS and CARF represent significant developments to counter offshore tax evasion in respect of financial assets, the Indian Presidency initiated a discussion on other classes of assets (such as immovable property) which present risks to tax transparency.
The OECD report on ‘Enhancing international tax transparency on real estate’, an Indian Presidency ask, is a significant contribution to guide future work on the feasibility of the exchange of information on a voluntary basis, considering all relevant issues including possible challenges and likely solutions, in respect of acquisition of immovable property. Tax transparency and availability of beneficial ownership information is not only critical for curbing tax evasion, but also for combating other financial crimes like corruption and money laundering. Global forum report on ‘Facilitating the use of tax-treaty-exchanged information for non-tax purposes’, prepared at the request of Indian Presidency, provides an approach to advance and streamline the wider use of treaty exchanged information between interested jurisdictions on a bilateral and voluntary basis, while upholding the confidentiality of such information. First of its kind, these two reports would be invaluable in influencing the future tax transparency agenda at the global level.
Towards furtherance of our shared goals on enhancing tax transparency, the G20 High Level Tax Symposium on combatting tax evasion, corruption and money laundering was organised on July 16 on the sidelines of the third G20 FMCBG meeting under the Indian G20 Presidency in Gandhinagar, Gujarat. The panellist Ministers and heads of international organisations acknowledged that financial crimes are complex, operate across international borders and deprive governments both in developed and developing countries of much needed resources. G20 members noted with great interest the discussions that delved into strategies that can be developed for a coordinated response for fighting tax crimes and other financial crimes.
Effective multilateralism on international tax co-operation has been the key feature of the international tax workstream. Consensus goals built and achieved on multilateral tax reform priorities including capacity building for tax administrations and enhancing tax transparency is Indian G20 Presidency’s definitive contribution to ‘further global good’ as envisioned by our Prime Minister!
(Rasmi Ranjan Das is Chief Commissioner of Income-tax and Uma Maheswari R is Additional Commissioner of Income-tax, Government of India. These are the authors’ personal views.)