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In the beginning, due to the limited and very low mobility of labour and capital, the tax
policies were primarily framed for the domestic economic and social concerns. As
development and liberalization paced the barriers to trade and investment were removed. This
removal of barriers resulted in changes in tax policies as it has created new challenges in the
field of tax policy. One such global challenge is harmful tax practices.

Harmful tax practise as per the OECD refers to three operative criteria:

Lack of effective exchange of information,

Lack of transparency, and
Attracting business with no substantial domestic activities (e.g. ring-fencing)
where coupled with low or zero tax rates.

By discouraging these practices, the Organisation for Economic Cooperation and

Development (OECD) serves to strengthen and to improve tax policies internationally. Such
activities not only diminish global welfare but also undermine the taxpayers confidence in
the integrity of the tax system. It develops measures to counter the distorting effects of the
harmful tax activities on investment and financial decision. These efforts and measures aim to
improve overall economic well-being for all taxpayers.

The OECD work on harmful tax practices is not intended to promote the harmonisation of
income tax or the tax structure generally within or outside the OECD, nor is it about dictating
to any country what should be the appropriate level of tax rates. Rather, the work is about
reducing the distorting influence of taxation on the location of mobile financial and service
activities thereby encouraging an environment in which free and fair tax competition can tax
place. 1

OECD Report on Harmful Tax Practices

The OECD has published three reports on harmful tax practices:


ECONOMIC CO-OPERATION AND DEVELOPMENT. Available at: accessed on 26/09/2016
Harmful Tax Competition: An Emerging Global Issue (1998);
Towards Global Tax Co-operation: Progress in Identifying and Eliminating Harmful
Tax Practices (2000);
The OECDs Project on Harmful Tax Practices: The 2001 Progress Report (2001).

The OECDs work on harmful tax practices originally was documented in the OECDs 1998
Report on Harmful Tax Competition: An Emerging Global Issue. The 1998 report agreed to
a set of factors to determine whether a regime is preferential and, if so, whether the
preferential regime is potentially and actually harmful. It also created the Forum on Harmful
Tax Practices (FHTP).

These reports and the work on harmful tax practices, in general, are an important piece in the
OECDs efforts to foster economic growth and development. The OECD has provided
guidelines for addressing harmful tax practices for its members country. These guidelines
provide for introducing new measures that are not harmful, a review of existing measures for
the purpose of identifying those that are harmful, and the removal of any practices that are
harmful by April 2003 (or by 2006 if certain criteria are met).

On 5 October 2015, the OECD Secretariat published thirteen papers and an Explanatory
Statement outlining consensus Actions under the Base Erosion and Profit Shifting (BEPS)
Project. BEPS is there when the tax planning strategies are such that would exploit the gaps
and mismatches in tax rules to artificially shift the profits to low or no tax locations where
there is little or no economic activity resulting into overall no corporate tax being paid.

BEPS Implementation in India

Indias involvement in the BEPS project has been intensive. It has been involved in devising
the Action Plans, and being part of various working groups, task forces and committees that
were set up to examine the different aspects of the Action Plans. In November 2015, the G-20
country leaders (including India) formally endorsed the 15-item action plan. The G-20
Finance Ministers (including Indias) have committed themselves to the rapid, widespread
and consistent implementation of BEPS measures.

Also, on February 29, 2016, the government issued the Budget Bill 2016, which contains
measures to introduce an equalisation levy (BEPS Action 1), a patent box incentive regime
(BEPS Action 5), and country-by-country (CbC) reporting (BEPS Action 13). Budget Bill
2016 also defers Indias place of effective management (PoEM) rules by one year from April
1, 2016, to April 1, 2017, which resembles controlled foreign company-type rules (BEPS
Action 3)

This study is about the harmful tax practices in India in relation to trade and profession and the
changes that have arose in the legal and economic framework after the OECD report.
This study also contains that how these harmful practices have affected the scenario in India.
The thorough study of the OECD report will also be done to make the situation clear.

The objective of the study is:
To verify the hypothesis of the study.
To make an analyses of the Harmful tax practices in India.
To draw out a comparative study between previous tax laws and the reformed provisions
after the OECD report.

The question at hand will be firstly, that whether there have been harmful trade practices in India
or not?
Secondly what are the reforms that have been made to curb out such practices and how effective
are the reformed provisions of law in doing so.


The Research is purely non-doctrinal. The various case studies, statutes, research papers,
judicial pronouncements and interpretation of the courts have been considered. The research
would be based on the other research papers which covers various aspects.


Various sites and research papers have been considered to understand the topic.