A white paper on global tax trends released by two leading entities has outlined a broad strategy that companies should follow to face the impact of implementation of Organization for Economic Cooperation and Development (OECD)-spearheaded action plan (AP) on Base erosion and profit shifting (BEPS).

The Paper captioned 'Evolving global tax policy trends: Outlook for India' has been jointly issued by Confederation of Indian Industry (CII) and Ernst & Young.

The Paper has recommended that the companies should consider potential realignment/ restructuring in light of current tax environment and potential changes that would result from implementation of AP by different countries. They should factor the new tax policy environment into their respective ongoing and future projects.

The Paper suggests that companies should identify the aspects of the AP that have the greatest potential impact on their business models. They should keep themselves updated about the ongoing developments in the OECD and the countries where they operate or invest.

The companies should also gear up for increasing reporting on their operations. They should review current business models and structures against specific target areas.

The corporate should also determine how to participate most effectively in discussions regarding the BEPS project and the underlying international tax policy issues, both with the OECD and the policymakers in the countries where they have presence.

The Paper notes that AP is "ambitious in its scope and a significant amount of work will be required over the next two and a half years. Significant work at the individual country level will be required to determine whether, when, and how to implement recommendations developed by the OECD as part of the Action Plan."

Discussing General Anti-Avoidance Rule and tax planning, the Paper says: "With GAAR now being introduced in several countries around the globe, clearly the ability to plan and execute transactions with a high degree of certainty will be reduced where governments rely on the catchall properties of a GAAR."

It adds: "Anti-avoidance rules typically apply by focusing on the substance of a transaction or arrangement. When insufficient substance is present, GAAR may allow the tax authority to change the tax result of a transaction or of steps within the transaction that it finds objectionable."

The paper has framed several questions that the firms might now ask themselves and their tax directors regarding those transactions that could potentially result in the application of a GAAR regime.

The questions include:

1) Does the transaction/structure have a valid commercial purpose?

2) Is the transaction/structure unique and complex?

3) Could the transaction/structure be undertaken in a different manner, without attracting the potential application of GAAR?

4) Is the transaction/structure defendable in the public eye? 5) What is the corporation's tax risk profile both globally and locally?

As for The Indian Transfer Pricing (TP) regulations, the Paper says: "The increase in litigation in India on transfer pricing issues has caught the attention of the world. With investors world over being cautious of the aggressive (and at times irrational) approach being adopted by Indian tax authorities, radical steps were required to boost foreign investors' confidence. Accordingly to this end, the GoI introduced safe harbour provisions and APA (Advance Pricing Agreement) program."

It points out that the Indian APA program has received an overwhelming response with more than 140 applications being filed in the first year and lot of applicants looking to applying in the second round. During discussions, the APA authorities have displayed an open mind with a positive intent to find an amicable solution for taxpayers.

However, domestic litigation is here to stay. No real mechanism (besides MAPs) is in place to address the root cause of transfer pricing-related issues and thereby, reduce the level of litigation for tax payers."

It adds: "While the introduction of safe harbour rules is a step in the right direction, the safe harbour margins appear to be high and do not reflect the economic environment. Continued insistence on such high margins will erode competitiveness of the Indian contract service provider, and shift work away to other preferred jurisdictions.