Interview by Elliot Wilson
India started the decade with high-profile tax controversies with multinational businesses.
Today, it is engaged with international tax reforms, digitalization and a new sales tax.
“I’m not worried about the ghost of retrospective taxation any more. We are focused on ensuring that our tax rules are consistent with global norms.“
Akhilesh Ranjan, Principal Chief Commissioner of Income Tax, India’s Ministry of Finance
The country’s tax administration remains focused on increasing efficiency, consistency and, ultimately, certainty.
We recently spoke with Akhilesh Ranjan, Principal Chief Commissioner of Income Tax with India’s Ministry of Finance, to learn more about the nation’s role in global tax reform.
Tax Insights: How important are the base erosion and profit shifting (BEPS) recommendations by the Organisation for Economic Co-operation and Development (OECD) to you and India?
Akhilesh Ranjan: India has always been a major player when it comes to BEPS, partly because we are an emerging economy whose companies are branching out into the world, and we need to protect our tax base.
India is also a huge market where multinationals want to come and do business.
We have always endorsed the principle that tax should be paid where value is created.
Even now, with India making a concerted push to go global, our tax practices have always worked in line with the rules set out in the BEPS action plan.
What BEPS has done is to rationalize and justify our existing tax policies, reinforcing and refining our rules, rather than significantly altering how we operate.
Which BEPS actions are the most relevant to India?
Transfer pricing is extremely important to us.
Country-by-country reporting is also of immense significance, as we are always striving to get more information about companies’ cross-border operations in order to improve our risk assessment processes and our understanding of, and ability to react to, transfer pricing issues.
We are making good headway on tackling treaty abuses.
Being a full member of the Joint International Tax Shelter Information Centre (JITSIC) has also been a great help to data gathering.
In the past, we would get almost zero information about how multinationals operate outside India.
What we needed were rules and norms that enabled us to decide where to focus our efforts and optimize our revenues.
The BEPS measures certainly do that, and the membership of JITSIC has proven to be an enormous help.
BEPS Action Plan 7 deals with permanent establishment (PE) and the measures some companies take to avoid PE status. How important is this challenge to you?
Fragmentation of businesses happens a lot in India.
Using anti-fragmentation rules, we have always sought to tax a company centrally.
But other major challenges, outlined in BEPS Action Plan 14, are those of thwarting treaty abuse and making dispute resolution mechanisms more effective.
The former is an issue that has plagued India for some time, but we are making good progress, cracking down on the worst excesses.
Dispute resolutions are a very important part of any tax policy and administration.
We have always had a lot of faith in mutual agreement procedures under tax treaties, and it’s the issue we would really like to improve on and make more functional.
Over the past three years, we’ve had tremendous success in resolving tax disputes with a large number of countries.
We will reach the point where disputes are resolved faster and more efficiently.
What are the other challenges you face in trying to levy taxes in a country of 1.25 billion people?
What concerns us primarily is ensuring that tax that should be paid in India is being paid in India.
We are still net importers of capital and technology, and I don’t see that situation changing much in the next 10 or 15 years.
But we are looking at enforcing a source-based taxation system.
This will ensure that tax is levied on all income accrued in the country, irrespective of the nationality of an individual or a company.
On the information front, we believe there has to be a global agreement wherein flows of data relating to multinationals are visible to every interested and relevant government.
We are introducing better reporting declaration systems across our taxation departments, focusing on putting systems in place that provide us with comprehensive details about high-value transactions.
Are you investing in new IT systems and human capital to track and analyze an ever-expanding volume of corporate data?
Yes — and this is an ongoing process.
Our systems and mechanisms are improving, as is our capacity to store and analyze information flows.
One of the biggest challenges we face is that of being able to receive, process and analyze real-time information flows sourced from domestic and international companies.
And that can only happen by expanding our internal capacity.
We are currently formalizing data security policies so that everything is collected and analyzed centrally.
We signed the Foreign Account Tax Compliance Act (FATCA) in 2015 with the United States.
The OECD and the US Government have since examined our processes and our safeguard systems, and reported that India was compliant with their rules and is heading in the right direction.
The subject of retrospective taxation is one that multinationals investing in India often raise. How can this concern be addressed?
Too much has been made of the so-called retrospective taxation in India.
We firmly believe there never was any new and retrospective taxation, just a retelling of the rules that were already clear and in place.
That’s all history now.
I’m not worried about the ghost of retrospective taxation anymore.
We are focused on ensuring that our tax rules are consistent with global norms.
And on the policy front, I do not think any major issues can be raised.
What are the biggest challenges facing your department now and in the long term?
We have a very complicated and very long legal procedure in general.
When you talk about certainty for taxpayers, this is an issue we take very seriously, as it can take years for corporates accused of tax evasion to have their case heard in court and even longer for an appeal to be brought to a final decision.
Cutting litigation lead times, reducing the amount of litigation that is channeled through the system and increasing certainty for taxpayers are very important targets for us.
What is it like being in charge of such a vast information and data organization? What is the hardest part of the job?
Fortunately, we started moving on the information technology front long ago, and we have systems in place that file taxes and disburse tax refunds.
The challenge is to set up new organizational units staffed by experts adept at analyzing new flows of tax data.
I’m 100% positive we are up to the task.
You see, it’s not such a terrifying job for me.
The recent push to clean up India’s economy by eliminating large-numbered banknotes has caused some problems. Nevertheless, could it have a positive impact on tax collection in the long term?
I believe so.
Government efforts to tackle the problem of unaccounted money are well-known, and the decision is definitely in the right direction.
A huge number of cash transactions that would once have gone unrecorded will now be tracked, processed and analyzed, and that makes our jobs far simpler.
It makes it far easier to track sources of income and verify whether or not they are being fairly reported.
If people move away from cash transactions, it’s better for tax administrators.
And we are moving toward more digitalization and digital processes through banking channels, which is a great sign.
But cash is still the heartbeat of life in India.
So this is a long-term process, where the key is to change individual psyches — and that is what the Government is trying to do.
A closer look: Akhilesh Ranjan
Akhilesh Ranjan is the Principal Chief Commissioner of Income Tax at India’s Ministry of Finance. He is also India’s representative for the OECD’s BEPS project and for the implementation of the OECD’s global standard on the automatic exchange of information. Previously, Ranjan held the role of India’s Competent Authority. He joined the Indian Revenue Service in 1982 after receiving a postgraduate degree in Physics from St. Stephen’s College, Delhi University.
According to the OECD, JITSIC is an initiative that “brings together 36 of the world’s national tax administrations that have com-mitted to more effective and efficient ways to deal with tax avoidance. It offers a platform to enable its members to actively col-laborate within the legal framework of effective bilateral and multilateral conventions and tax information exchange agreements — sharing their experience, resources and expertise to tackle the issues they face in common.”