Evaluation of India’s Engagement with the Organisation for Economic Co-operation and Development (OECD)

1. Overview of India’s Engagement with the OECD

Participation and Membership

• Active Member: India is not a full member but engages with the OECD as a key partner through various forums and initiatives. India has been actively involved in OECD’s discussions and policy-making processes, reflecting its commitment to shaping and aligning with global economic policies.
• Recent Developments: India’s participation in OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes and the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS) illustrates its active engagement.

2. Shaping the Global Tax Policy Agenda

Taxation of the Digital Economy

• International Cooperation: India has been actively involved in the OECD’s discussions on the taxation of the digital economy, which aim to address challenges posed by digitalization and ensure fair tax practices. The OECD’s 2021 Pillar One and Pillar Two framework seeks to address these challenges by reallocating taxing rights and setting a global minimum tax.
• Recent Example: India supported the OECD’s Pillar One framework, which proposes reallocating a portion of the taxing rights to countries where digital companies have significant consumer bases. India’s 2023 implementation of the equalisation levy aligns with this framework to ensure that digital giants pay taxes where they earn significant revenue.

Implementation of BEPS Framework

• Commitment to BEPS Actions: India has been a proactive participant in the OECD’s BEPS framework, which aims to combat tax avoidance by multinational companies and ensure that profits are taxed where economic activities occur and value is created.
• Recent Example: India has implemented several BEPS Action Plan recommendations, such as the Country-by-Country Reporting (CbCR) requirement, which enhances transparency regarding multinational companies’ operations and tax liabilities. The 2023 updates to the Indian tax code incorporated these BEPS guidelines to align with international standards.

3. Impact and Challenges

Positive Impact

• Improved Tax Compliance: India’s alignment with OECD tax policies has enhanced its tax compliance and transparency. The 2023 introduction of the G20-OECD Inclusive Framework’s BEPS standards has helped India tackle aggressive tax planning and base erosion by multinational corporations.
• Investment Climate: Adopting OECD standards has improved India’s investment climate by providing a more predictable and transparent tax environment. The 2024 update to India’s tax treaties reflects this improved alignment, attracting foreign investment.

Challenges

• Implementation Complexity: The complexity of implementing OECD guidelines, especially the BEPS framework, presents challenges. India’s tax administration has faced difficulties in enforcing some of the BEPS measures due to the intricate nature of international tax rules.
• Recent Example: The delays in full implementation of the BEPS Action 4 measures related to interest limitation rules have highlighted challenges in adapting domestic tax regulations to international standards.

4. Future Prospects and Recommendations

Strengthening Domestic Policies

• Enhanced Alignment: India should continue to enhance its domestic tax policies to align with OECD standards fully. This includes improving the enforcement of BEPS measures and adapting tax regulations to accommodate the evolving digital economy.
• Recent Initiatives: The 2024 revision of the Indian Income Tax Act aims to address some of these alignment challenges, focusing on increasing compliance and reducing tax avoidance.

Promoting International Cooperation

• Active Participation: India should maintain its active participation in OECD discussions and forums to influence global tax policies and ensure that its interests are represented in international tax reforms.
• Recent Developments: India’s role in the OECD’s Global Forum and the G20’s discussions on tax matters provides opportunities to shape and contribute to global tax policy developments.

Addressing Implementation Challenges

• Capacity Building: Strengthening the capacity of Indian tax authorities and improving the technological infrastructure for implementing OECD standards can help address challenges in enforcing BEPS measures and other tax policies.
• Recent Examples: Initiatives such as the Digital Payment Ecosystem and Taxpayer Services Enhancement Program are steps towards building the necessary infrastructure for effective policy implementation.

Conclusion

India’s engagement with the Organisation for Economic Co-operation and Development (OECD) has significantly impacted its approach to global tax policy, particularly regarding the taxation of the digital economy and the implementation of the BEPS framework. India’s active participation in OECD initiatives has led to improved tax compliance and a more transparent investment climate. However, challenges related to implementation complexity and capacity constraints remain. By strengthening domestic policies, promoting international cooperation, and addressing implementation challenges, India can enhance its role in shaping global tax policy and effectively leverage its engagement with the OECD.