In its quest to collect taxes from multinational companies (MNCs), the government should not create a structure that makes their operations completely unviable, said Parthasarathi Shome, former Chairman, Tax Administrative Reforms Commission.

“The basic thing to remember is that India is part and parcel of a much wider world. We are not closed anymore, we are not autarchic,” he said.

“Because now we trade so much more than we did 10-20 years ago, we have to see how MNCs divide their tax burden across the world. Are we getting a fair share of their tax here?”

Indian companies are also setting up branches in other countries. So, this opens up a new branch of tax economics, Shome said while addressing a colloquium here.

He mentioned that India and Brazil have been made observers of a new OECD (Organisation of Economic Cooperation and Development, an organisation of developed countries) project called Base Erosion and Profit Shifting (BEPS).

Here, companies transfer profits from a high-tax jurisdiction to a low-tax jurisdiction where they have set up shell companies. The paradox is that some global companies contribute a lot to world growth but they don’t pay even 1 per cent tax on their profits as corporate tax. So, advanced tax administrations have asked the OECD to analyse how to reduce BEPS in order not to deplete completely what they pay on a global basis to governments.

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