DMPQ: Explain the following terms ( Economy) a) Tax havens b) BEPS c) GAAR d) Transfer pricing
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a) Tax havens: A tax haven is a country or territory where certain taxes are levied at low rate or not at all. The basic features of tax havens are nil or nominal rates, lack of effective exchange of information, no requirement of substantive local presence.
b) BEPS: Base erosion and profit sharing as the name suggest means to reduce the profit in the source country where economic activity is there so that net taxable income reduces. This lead to lowering of revenue for the domestic country. Treaty shopping, transfer pricing are tools to achieve base erosion and profit sharing.
C) GAAR: General anti avoidance rule is a method to attack on tax avoidance by the entities. It give discretionary powers to tax authorities to assess the tax liability of shell companies or which are created to evade taxes.
D) Transfer pricing: It is setting of the price for goods and services sold between related entities within an enterprise. For example a subsidiary company in India can sell the services at lower price deliberatelyb to its parent company located in USA to lower its tax liability in India.( reduction in profit)
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