"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 CII and Ernst & Young 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.
Terming many of the policy measures taken by the Indian government as "unilateral and unsettling for the taxpayers", the paper suggests following a consultative and collaborative approach in dealing with tax issues.
"Taking unilateral decisions would not be desirable as this creates uncertainty for the taxpayers," the paper said. At the request of G20 finance ministers, the OECD launched an 'Action Plan on Base Erosion and Profit Shifting (BEPS)' in July 2013, identifying 15 specific actions needed in order to equip governments with the domestic and international instruments to address this challenge.
The white paper suggests companies to identify aspects of the plan that have the greatest potential impact on their business models and prepare for increased reporting.
It also asks firms to review current business models and structures against specific target areas, and factor in the new tax policy environment into ongoing and future projects.
"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," Sudhir Kapadia, National Tax Leader of E&Y said.
Stating that the manner in which a corporation engages with a tax authority seeking to invoke GAAR (General Anti Avoidance Rules) is critical, the paper suggests firms to chalk out a strategy and pay close attention to the process that is used by the tax authorities for invoking GAAR.
Besides, the paper urges the CBDT to simplify the compliance rules for taxpayers, as safe harbour rules continue to impose the burden of maintaining transfer pricing documentation on taxpayers.
"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.
The BEPS plan recognises the importance of addressing the border-less digital economy and will develop a new set of standards to prevent double non-taxation.