E&Y-CII report calls for stable tax environment

The Indian government should provide a stable tax environment and simplify procedures in sync with global practices, a white paper prepared by the Confederation of Indian Industry (CII) and Ernst & Young (FY) said.

The report, which is in sharp contrast with the rising concerns of governments across the world on losing tax base, however, said India like all other countries, has every right to protect its tax base.

"India has every right to protect its tax base. However, for fostering investments, promoting economic growth and facilitating job creation, India must provide a more stable environment and resist from adopting unique, aggressive positions that are not in sync with the international norms," the white paper by the Confederation of Indian Industry (CII) and Ernst & Young (FY) said.

"Our country needs a tax system which is simple, broad-based, less litigious and transparent and ensures international competitiveness. We need to benchmark our systems with international best practices," CII director general Chandrajit Banerjee said.

The white paper calls for a collaborative approach by the Indian government in formulating tax policy measures rather than taking measures taken by the Indian government as "unilateral and unsettling for the taxpayers."

"Taking unilateral decisions would not be desirable as this creates uncertainty for the taxpayers," it said.

At the same time, the white paper suggests that companies identify aspects of business plan that have the greatest potential tax impact and prepare for increased reporting.

Also, firms should review current business models and structures against specific target areas and factor in the new tax policy environment into ongoing and future projects.

The firm should chalk out a strategy and pay close attention to the process used by the tax authorities for invoking GAAR as the manner in which a corporation engages with a tax authority seeking to invoke general anti avoidance rules (GAAR) is critical, the paper stated.

"If the government agrees with the Shome Committee proposals on indirect transfers, it will be highly beneficial for the FII structure. There is also a need to empower DRPs (Dispute Resolution Panels) in India in order to reduce transfer pricing litigation," said Sudhir Kapadia, national tax leader at E&Y.

The paper urges the Central Board of Direct Taxes (CBDT) to simplify the compliance rules for taxpayers so as to reduce the burden of documentation on tax payers.

"A well administered safe harbour regime with unambiguous rules is in the interest of the entire country and will arrest the increase in transfer pricing litigation and boost investor confidence," it said.

Meanwhile, the Organisation for Economic Co-operation (OECD) had, at the request of G20 finance ministers, launched an 'Action Plan on Base Erosion and Profit Shifting (BEPS)' in July 2013, identifying 15 specific actions needed to address the challenge.

The BEPS plan, which envisages a border-less digital economy, will develop a new set of standards to prevent double ''non-taxation.''

(Also see: FDI sops, fallen rupee make India top investment destination; E&Y )