Category: Income Tax Circulars 2013

ITAT’s PRACTICE NOTE, DATED 1-1-2013

Appellants, Respondents and all other concerned are hereby informed that, in exercise of powers vested in the Income Tax Appellate Tribunal under sub-section [5] of section 255 of the Income Tax Act, 1961, it is directed that appeals and applications fixed before the Income Tax Appellate Tribunal [ITAT), Allahabad Bench, Allahabad will be heard through Video Conferencing by the Members of the ITAT as may be nominated by the President, ITAT from time to time sitting at ITAT, Delhi Benches, Delhi. This system of hearing through Video Conferencing will be referred to as ‘E-Court’. For the purposes of E-Court, detailed Regulations along with Do’s, Don’ts and Forms for use under these Regulations are framed and enclosed herewith for compliance by all concerned.

Regulations Regarding Hearing of Appeals by Video Conference:

There shall be no change in the present procedure of filing, scrutiny, hearing and disposal of appeals except modifications stipulated below:

(A) Notifying hearing of appeal by Video Conferencing:

 1.  The President may, by notification issued from time to time, direct that appeals pending before any Bench of the Tribunal shall be heard in addition to hearing in open court and at the option of the parties to an appeal or appeals, through Video Conferencing, by members of the same Bench or members of other Benches, sitting in any other place/Bench/Benches of the Tribunal.

 2.  For the purpose of E-courts, the Original Bench (OB) shall be the Bench where the appeal is filed or the Bench where such appeal is to be heard in ordinary course. Similarly the bench in which the appeal is fixed for hearing through video conferencing shall be referred to as E-Bench (EB).

 3.  Necessary infrastructure shall be created and maintained at OB as well as at EB so as to carry out the proceedings for hearing appeals through video conferencing.

(B) Procedure prior to hearing of appeal by video conferencing:

 1.  In the notice of hearing, the place of hearing will be mentioned which will be the place of the Office of the OB or such other place within the same city. The notice of hearing shall also specify the place of EB.

 2.  Along with notice of hearing, a note duly signed by the Assistant Registrar will be enclosed, in which it will be clearly mentioned that hearing will take place at OB/EB through video-conferencing. The same shall be as per Annexure-A annexed hereto. In case the assessee or the Department does not want the case to be heard through Video Conferencing, he/they may intimate the registry within a week. The form of such intimation may be as per Annexure-B.

 3.  The cases other than in which the Annexure – B is received from either of the parties will be considered for hearing by the EB. These cases will be marked as EB and will be kept separately.

 4.  Thereafter, original files in duplicate shall be sent by the office of OB to the office of the EB. Prior to sending the original files, the OB shall create a duplicate copy of the file to be kept ready for the use at the time of hearing by the office of OB, for making office notings/directions etc.

 5.  One hour before the scheduled time of hearing on a given day, the Bench Clerks will be present in the EB and OB along with the files fixed for hearing for that day and ensure that electronic screen etc. are functioning well before the scheduled time of hearing.

 6.  Paper Book meant for the members of the E-Bench are to be filed at the place of OB as per existing Rules. However, it is advisable to file the same well in advance to ensure that they are available at EB on the date of hearing.

 7.  Existing rules do not provide for filing of any loose paper/document at the time of hearing which will be strictly followed in case of EB hearing. In case parties are relying on any un-reported judgments, a copy of the same has to be given to the Bench Clerk at OB who will immediately after hearing forward the same to the members of the EB.

(C) Procedure at the Hearing of Appeal by E-Bench:

 1.  The same practice as is being followed by the Bench in hearing appeals in open court will be followed when the appeal is heard through Video Conferencing, as there is no difference in procedures except that the Bench and Bar are at different places connected electronically.

 2.  Without prejudice to the generality of what is stated above, the following procedure shall be adopted when the hearing of appeals takes place through Video Conferencing.

 3.  Bench Clerks sitting at EB and OB will make the entries in the order sheet simultaneously. In case of discrepancy in recording the order sheet at EB and OB, the entry in order sheet maintained at EB shall prevail as it will be signed by the Members. At the conclusion of hearings for the day both Bench Clerks will match the entries of the order sheets and discrepancy if any shall be rectified according to the order sheet of EB and parties may be informed accordingly.

 4.  As per the existing Rules, additional evidence if any, to be filed by the parties has to be in the form of separate paper book which will have to be strictly followed as no loose documents can be accepted at the time of hearing, except with the permission of the Members of Bench subject to no objection by the other party.

 5.  In the concluded cases, if EB wants any clarification from either party then the same will be listed for rehearing before EB and will be heard in the like manner as adopted in regular course except such hearing will take place through video conference.

 6.  If the EB thinks fit to examine any witness necessary for deciding appeal before it, the same shall be done by Video Conferencing and the procedure for hearing appeal shall mutatis mutandis apply to recording of such evidence .

 7.  The fact regarding conclusion of hearing will be duly recorded in the file both at the OB as well as at EB, by the concerned Bench Officers of both the Benches.

 8.  The Registry will ensure that the order once it is signed by both the Members is put on the Net on the same date which will serve the purpose of pronouncement in Open Court as order will become accessible to public.

 9.  The pronouncement of the orders by the EB will be done by Video Conferencing and such pronouncement shall be done in the same manner as the hearing of appeals by the EB.

10.  The same procedure will apply to miscellaneous applications and stay applications also.

11.  Within the frame work of the procedure referred to above, the EB will be at liberty to adopt its own procedure depending upon the circumstances prevailing at the time of hearing of such appeal. The EB shall ensure that such procedure affords reasonable opportunity of being heard to the parties.

(D) Miscellaneous Regulations

 1.  Since proceedings before EB are not being recorded nobody will be entitled to ask for replay/copy of the proceedings. However, certified Copies of record can be issued to the parties on their application as per existing rules.

 2.  The records and record of the proceedings before the EB shall be maintained in the same manner and for the same period as the records are being maintained by the Tribunal of appeals which are heard in open court.

 3.  Certified copy of the order passed by the EB shall be issued to the parties by the OB in the same manner as orders of Benches are issued when appeals are heard in open court.

 4.  The President by notification issued from time to time, nominate members of the EB from and out of the existing members of the Tribunal. Such nomination shall be in accordance with the provisions of the Income Tax Act, 1961.

 5.  If any party who earlier has submitted Annexure -A, later on wants to get its appeal decided through E-court then he can submit fresh request as perAnnexure -C and after obtaining no objection from other party the appeal will be listed for hearing before E-court.

….

• Do not delay in sending Annexure-B in case you do not want E- hearing.
  
• Do not delay filing paper book or other documents /orders till the last moment, including the Power of Attorney/ Authorization.
  
• Do not look at the Camera while arguing your case.
  
• Do not shout, as the audio spoils the clarity in your speech.
  
• Do not enter into/entertain cross talk in the Court Room.
  
• Do not worry about camera angle. The technical aspects of presentation are taken care by Office.
  
• Do not submit any documents at the time of hearing. If required, take leave of the Members and follow the instructions given.
  
• Do not seek adjournments, unless absolutely necessary.
  
• Do not appear at the place of E.B. No personal hearing shall take place at the place of E.B.
  

Draft note to be signed by Assistant Registrar and to be enclosed with notice of hearing.

It may please be noted that hearing of the appeal / application will take place at e-Bench located at

…………………………

Through video conferencing. In case the assesse does not want the case to be heard through e-Bench he may intimate the registry within a week from receipt of this notice. In case no option is received, the hearing shall take place as notified above.

Assistant Registrar

Press release, dated 14-1-2013

A number of countries have provided for General Anti Avoidance Rules (GAAR) in matters relating to taxation. While tax mitigation is recognized, tax avoidance is frowned upon. International literature describes tax avoidance as the legal exploitation of tax laws to one’s own advantage and an arrangement entered into solely or primarily for the purpose of obtaining a tax advantage.

2. The principle of GAAR was incorporated in the Direct Taxes Code which was introduced as a Bill in Parliament on August 30, 2010.

3. Pending consideration of the Bill, the Income-tax Act, 1961 was amended by Finance Bill, 2012 to add Chapter X-A titled ‘General Anti-Avoidance Rule’. It became part of the law when the Finance Bill was passed by Parliament. Draft GAAR guidelines were also published. Under the current provisions, Chapter X-A would come into force with effect from April 1, 2014.

4. A number of representations were received against the provisions contained in Chapter X-A. Hence, on July 13, 2012, the Prime Minister approved the constitution of an Expert Committee on GAAR to undertake stakeholder consultations and finalize the guidelines for GAAR. Accordingly, an Expert Committee consisting of Dr. Parthasarathi Shome and three others was constituted on July 17, 2012 with broad terms of reference including consultation with stakeholders and finalizing the GAAR guidelines and a roadmap for implementation.

5. The Expert Committee submitted its draft report on August 31, 2012 which was placed in the public domain on September 1, 2012. After examining the responses to the draft, the Expert Committee submitted its final report on September 30, 2012.

6. The Government has carefully considered the report of the Expert Committee.

7. The major recommendations of the Expert Committee have been accepted, with some modifications, and the following decisions have been taken by Government:

(i)  An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement. The current provision prescribing that it should be "the main purpose or one of the main purposes" will be amended accordingly.

(ii)  The assessing officer will be required to issue a show cause notice, containing reasons, to the assessee before invoking the provisions of Chapter X-A.

(iii)  The assessee shall have an opportunity to prove that the arrangement is not an impermissible avoidance arrangement.

(iv)  The two separate definitions in the current provisions, namely, ‘associated person’ and ‘connected person’ will be combined and there will be only one inclusive provision defining a ‘connected person’.

(v)  The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academic or scholar having special knowledge of matters such as direct taxes, business accounts and international trade practices. The current provision that the Approving Panel shall consist of not less than three members being Income-tax authorities or officers of the Indian Legal Service will be substituted.

(vi)  The Approving Panel may have regard to the period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement. Such factors may be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement.

(vii)  The directions issued by the Approving Panel shall be binding on the assessee as well as the Income-tax authorities. The current provision that it shall be binding only on the Income-tax authorities will be modified accordingly.

(viii)  While determining whether an arrangement is an impermissible avoidance arrangement, it will be ensured that the same income is not taxed twice in the hands of the same tax payer in the same year or in different assessment years.

(ix) Investments made before August 30, 2010, the date of introduction of the Direct Taxes Code, Bill, 2010, will be grandfathered.

(x)  GAAR will not apply to such FIIs that choose not to take any benefit under an agreement under section 90 or section 90A of the Income-tax Act, 1961. GAAR will also not apply to non-resident investors in FIIs.

(xi)  A monetary threshold of Rs. 3 crore of tax benefit in the arrangement will be provided in order to attract the provisions of GAAR.

(xii)  Where a part of the arrangement is an impermissible avoidance arrangement, GAAR will be restricted to the tax consequence of that part which is impermissible and not to the whole arrangement.

(xiii)  Where GAAR and SAAR are both in force, only one of them will apply to a given case, and guidelines will be made regarding the applicability of one or the other.

(xiv)  Statutory forms will be prescribed for the different authorities to exercise their powers under section 144BA.

(xv)  Time limits will be provided for action by the various authorities under GAAR.

(xvi)  Section 245N(a)(iv) that provides for an advance ruling by the Authority for Advance Rulings (AAR) whether an arrangement is an impermissible avoidance arrangement will be retained and the administration of the AAR will be strengthened.

(xvii)  The tax auditor will be required to report any tax avoidance arrangement.

8. Further, having considered all the circumstances and relevant factors, Government has also decided that the provisions of Chapter X-A will come into force with effect from April 1, 2016 (as against the current provision of April 1, 2014).

9. The final report of the Expert Committee has been put on the website of the Ministry of Finance today.

F. No. 178/84/2012-ITA.I
Government of India
Ministry of Finance
Department of Revenue Central Board of Direct Taxes

New Delhi, the 17^th January, 2013

Circular No. 01/2013

Subject: Issues relating to export of computer software-Direct tax benefits-Clarification reg.

The Indian Software Industry has been the beneficiary of direct tax incentives under the
provisions like Sections 10A, 10AA & 10B of the Income -tax Act, 1961 in respect of their
profits derived from the export of computer software. These provisions prescribe incentives
to “units” or “undertakings”, established under different schemes, which are/were deriving
profits from export of computer software subject to fulfilling the prescribed conditions.

2. It has been represented by the software companies that several issues arising from the above

mentioned provisions are giving rise to disputes between them and the Income-tax authorities leading to denial of tax benefits and consequent litigation and, therefore, require clarification. Various issues highlighted by the Software Industry have been examined by the Board and the following clarifications are hereby issued –

(i) (a) WHETHER “ON-SITE” DEVELOPMENT OF COMPUTER SOFTWARE QUALIFIES AS AN EXPORT ACTIVITY FOR TAX BENEFITS UNDER SECTIONS 10A, 10AA AND 10B OF THE INCOME TAX ACT, 1961;

AND

(b) WHETHER RECEIPTS FROM DEPUTATION OF TECHNICAL MANPOWER FOR SUCH “ON-SITE” SOFTWARE DEVELOPMENT ABROAD AT THE CLIENT’S PLACE ARE ELIGIBLE FOR DEDUCTION UNDER SECTIONS 10A, 10AA AND 10B.

(a) CBDT had earlier issued a Circular (Circular No. 694 dated 23.11.1994) which provided that a unit should not be denied tax-holiday under sections 10A or 10B on the ground that the computer software was prepared ‘on-site’, as long as it was a product of the unit, i.e., it is produced by the unit. However, certain doubts appear to have arisen following the insertion of Explanation 3 to sections 10A and 10B (vide Finance Act, 2001) and Explanation 2 to section 10AA (vide Special Economic Zones Act, 2005) providing that “the profits and gains derived from on site development of computer software (including services for development
of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India”, and a clarification has been sought on the impact of the Explanation on the tax-benefits as compared to the situation that existed prior to the amendments.

The matter has been examined. In view of the position of law as it stands now, it is clarified that the software developed abroad at a client’s place would be eligible for benefits under the respective provisions, because these would amount to ‘deemed export’ and tax benefits would not be denied merely on this ground. However, since the benefits under these provisions can be availed of only by the units or undertakings set up under specified schemes in India, it is necessary that there must exist a direct and intimate nexus or connection of development of software done abroad with the eligible units set up in India and such development of software should be pursuant to a contract between the client and the eligible unit. To this extent, Circular No. 694 dated 23.11.1994 stands further clarified.

(b) It has also been brought to notice that it is a common practice in the software industry to depute Technical Manpower abroad   (at the client’s place) for software  development  activities (like  upgradation,  testing,  maintenance, modification, trouble-shooting etc.), which often require frequent interaction with the clients located outside India. Due to the peculiar nature of software development work, it has been suggested that such deputation of Technical Manpower abroad should not be considered detrimental to the benefits of the exemption under sections 10A, 10AA and 10B merely because such activities are rendered outside the eligible units /undertakings.

The matter has been examined. Explanation 3 to sections 10A and 10B and Explanation 2 to section 10AA clearly declare that profits and gains derived from ‘services for development of software’ outside India would also be deemed as profits derived from export. It is therefore clarified that profits earned as a result of deployment of Technical Manpower at the client’s place abroad specifically for software development work pursuant to a contract between the client and the eligible unit should not be denied benefits under sections 10A, 10AA and 10B provided such deputation of manpower is for the development of such software and all the prescribed conditions are fulfilled.

(ii) WHETHER IT IS NECESSARY TO HAVE SEPARATE MASTER SERVICE AGREEMENT (MSA) FOR EACH WORK CONTRACT AND TO WHAT EXTENT IT IS RELEVANT.

As per the practice prevalent in the software development industry, generally two types of agreement are entered into between the Indian software developer and the foreign client. Master Services Agreement (MSA) is an initial general agreement between a foreign client and the Indian software developer setting out the broad and general terms and conditions of business under the umbrella of which specific and individual Statement of Works (SOW) are formed. These SOWs, in fact, enumerate the specific
scope and nature of the particular task or project that has to be rendered by a particular unit under the overall ambit of the MSA. Clarification has been sought whether more than one SOW can be executed under the ambit of a particular MSA and whether SOW should be given precedence over MSA.

The matter has been examined. It is clarified that the tax benefits under sections 10A, 10AA and 10B would not be denied merely on the ground that a separate and specific MSA does not exist for each SOW. The SOW would normally prevail over the MSA in determining the eligibility for tax benefits unless the Assessing Officer is able to establish that there has been splitting up or reconstruction of an existing business or non-fulfilment of any other prescribed condition.

(iii) WHETHER RESEARCH AND DEVELOPMENT (R&D) ACTIVITIES PERTAINING TO SOFTWARE DEVELOPMENT WOULD BE COVERED UNDER THE DEFINITION OF “COMPUTER SOFTWARE” STIPULATED UNDER EXPLANATION 2 TO SECTIONS 10A AND 10B.

The definition of “computer software” stipulated under Explanation 2 to sections 10A and 10B includes “any customized electronic data or any product or service of similar nature, as may be notified by the Board….”. The CBDT had already issued Notification No. 890(E) dated 26.09.2000 specifying such items. The notification includes Engineering and Design but does not specifically include Research and Development activities related to software development in respect of which clarification has been sought.

After examining the matter, it is clarified that the services covered by the aforesaid Notification, in particular, the ‘Engineering and Design’ do have the inbuilt elements of Research and Development. However, for the sake of clarity, it is reiterated that any Research and Development activity embedded in the ‘Engineering and Design’, would also be covered under the said Notification for the purpose of Explanation 2 to the above provisions.

(iv) WHETHER TAX BENEFITS UNDER SECTIONS 10A, 10AA AND 10B WOULD CONTINUE TO REMAIN AVAILABLE IN CASE OF A SLUMP-SALE OF A UNIT/UNDERTAKING.

The vital factor in determining the above issue would be facts such as how a slump-sale is made and what is its nature. It will also be important to ensure that the slump sale would not result into any splitting or reconstruction of existing business. These are factual issues requiring verification of facts. It is, however, clarified that on the sole ground of change in ownership of an undertaking, the claim of exemption cannot be denied to an otherwise eligible undertaking and the tax holiday can be availed of for the unexpired period at the rates as applicable for the remaining years, subject to fulfilment of prescribed conditions.

(v) WHETHER IT IS NECESSARY TO MAINTAIN SEPARATE BOOKS OF ACCOUNT FOR AN ASSESSEE IN RESPECT OF ITS ELIGIBLE UNITS CLAIMING TAX BENEFITS UNDER SECTIONS 10A AND 10B.

Since there is no requirement in law to maintain separate books of account, the same cannot be insisted upon. However, since the deductions under these sections are available only to the eligible units, the Assessing Officer may call for such details or information pertaining to different units to verify the claim and quantum of exemption, if so required.

(vi) WHETHER TAX BENEFITS UNDER SECTION 10AA CAN BE ENJOYED BY AN ELIGIBLE SEZ UNIT CONSEQUENT TO ITS TRANSFER TO ANOTHER SEZ.

This issue relates to cases where an eligible SEZ unit is shifted from one SEZ to another SEZ on account of commercial exigencies. This shifting is permissible under Instruction No.59 (F.No.C-4/2/2010-SEZ) issued by Department of Commerce (SEZ Division), provided approval from the Board of Approvals (BOA) has been obtained. Doubts have been raised whether such shifting of an eligible unit would deprive the unit/undertaking of tax benefits, provided there is no splitting or reconstruction of an existing business.

The matter has been examined and it is clarified that the tax holiday should not be denied merely on the ground of physical relocation of an eligible SEZ unit from one SEZ to another in accordance with Instruction No. 59 of Department of Commerce (referred to above) and if all the prescribed conditions are satisfied under the Income-tax Act, 1961. It is further clarified that the unit so relocated will be eligible to avail of the tax benefit for the unexpired period at the rates applicable to such years.

(vii) WHETHER NEW UNITS/UNDERTAKINGS SET UP IN THE SAME LOCATION WHERE THERE IS AN EXISTING ELIGIBLE UNIT/UNDERTAKING WOULD AMOUNT TO EXPANSION OF THE EXISTING UNIT/UNDERTAKING.

Whether setting up of new unit/undertaking in a location (covered by sections 10A, 10AA or 10B), where an eligible unit is already existing, would amount to expansion of such already existing unit is a matter of fact requiring examination and verification. However, it is clarified that setting up of such a fresh unit in itself would not make the unit ineligible for tax benefits, as long as the unit is set-up after obtaining necessary approvals from the competent authorities; has not been formed by splitting or reconstruction of an existing business; and fulfils all other conditions prescribed in the relevant provisions of law.

3. The above may be brought to the notice of all concerned.

 

(SURABHI SHARMA)

Under Secretary (ITA.I)
Telefax: 23093070

 

To,

1.  The Chairperson, Members and all other officers of the CBDT of the rank of Under Se
cretary and above.

2.  All Chief Commissioners/Directors General of Income-tax.

3.  The Director (PR, PP & OL), Mayur Bhawan, New Delhi for printing in the quarterly tax bulletin and for circulation as per usual mailing list (100 Copies).

4.  The Comptroller and Auditor General of India (40 copies).

5.  All Directors of Income-tax, New Delhi.

6.  The Director General of Income-tax, NADT, Nagpur.

7.  Guard File.

 

(SURABHI SHARMA)

Under Secretary (ITA.I)

Press Release, dated 18-1-2013

1. Affirming their continued commitment to promote closer coordination and cooperation in the area of tax administration, the Heads of the Revenue of the BRICS Countries i.e. Brazil, Russia, India, China and South Africa, identified seven areas of tax policy and tax administration, for extending their mutual cooperation. This was contained in the Joint Communique issued here today at the end of two day meeting of the Heads of Revenue of BRICS Countries. This mutual cooperation includes contribution to development of international standards on International Taxation and Transfer Pricing taking into account the aspirations of developing countries in general and BRICS Countries in particular. The other areas of cooperation are strengthening the enforcement processes, sharing of best practices and capacity building, sharing of anti-avoidance and non-compliance practices and promotion of effective exchange of information.

2. The communiqué expresses the concerns of BRICS Countries at the erosion of the tax base by practices that involve abuse of tax treaty benefits, incomplete disclosure of information and fraudulent claims and makes a commitment to address these concerns by preventing the base erosion and profit shifting through mutual cooperation.

3. The communiqué also expresses an agreement amongst BRICS Countries for working together towards capacity building, improvement of systems and sharing of resources, knowledge and best practices and emphasizes the spirit of cooperation and solidarity that underlies the BRICS partnership and aims at extending it to the area of tax administration in a way that will benefit the people of BRICS Countries.

4. The Heads of Revenue of BRICS Countries earlier met in New Delhi on 17th and 18th January, 2013 and held discussions on issues relating to International Taxation, Transfer Pricing, Prevention of Cross-border tax evasion and avoidance, exchange of information, sharing of best practices in tax system administration and resolution of disputes. The meeting was inaugurated by Finance Minister of India on 17th January and was concluded on 18th January, 2013 by the Revenue Secretary Shri Sumit Bose.

5. This was the first meeting of the Heads of Revenue and on conclusion of the meeting, a joint communiqué was issued in which the Revenue Heads of BRICS Countries agreed to develop greater cooperation among their tax administrations on various issues of mutual interest and concerns. The communiqué recognizes the importance of the economic and commercial links amongst BRICS Countries and the need to contribute to the strengthening of these links.

Following is the Joint Communique issued after the meeting of the Heads of the Revenue of BRICS Countries:

Communiqué of BRICS Heads of Revenue Meeting Issued in New Delhi on 18th January, 2013

We, the Heads of Revenue of the Federal Republic of Brazil, the Russian Federation, the Republic of India, the People’s Republic of China and the Republic of South Africa held a meeting on 17th and 18th January, 2013 at New Delhi to discuss the potential areas of cooperation based on our existing commitment to openness, solidarity, mutual understanding and trust, as stated in the Delhi Declaration issued on March 29, 2012. In this context, we would like to refer to the decision taken during the BRICS Finance Ministers and Central Bank Governors meeting held in Washington DC on 19th April, 2012, wherein it was agreed by all countries to develop a cooperative approach on issues relating to international taxation, transfer pricing, exchange of information and tax evasion and avoidance.

Tax Administration Cooperation

In accordance with the above, we conducted the meeting with the primary objective of identifying specific areas of common interest and concern and finding ways and means for improving cooperation in these areas related to international taxation, transfer pricing, exchange of information, prevention of tax evasion and avoidance, and tax legislation and administration. We

•  affirm our continued commitment to the objectives of the BRICS Heads of Revenue of promoting closer coordination and cooperation on issues of mutual concern;

•  recognise the importance of the economic and commercial links between Brazil, Russia, India, China and South Africa and the need for us to contribute to the strengthening of these links.

We agree to extend the cooperation on the following issues of tax policy and tax administration:

(i)  contribute to development of International Standards on International Taxation and Transfer Pricing taking into account the aspirations of developing countries in general and BRICS Countries in particular

(ii)  strengthening the enforcement processes by taking appropriate actions for non-compliance and putting more resources on international cooperation

(iii)  sharing of best practices and capacity building

(iv)  sharing of anti-tax evasion and non-compliance practices, including abuse of treaty benefits and shifting of profits by way of complex multi-layered structures

(v)  development of a BRICS mechanism to facilitate countering abusive tax avoidance transactions, arrangements, shelters and schemes

(vi)  promotion of effective exchange of information

(vii)  any other issues of common interests and concerns related to taxation.

Confronting Non-Compliance with the Tax Laws in an International Context

We express our concern at the erosion of the tax base by practices that involve abuse of tax treaty benefits, incomplete disclosure of information and fraudulent claims, and jointly agree to work together to address these concerns. We commit to prevent the base erosion and profit shifting through cooperation amongst ourselves and with other countries. We also agree to produce a paper on these subjects for mutual benefit of BRICS countries.

Capacity Building

We agree to work together towards capacity building of personnel and improvement of our systems and express our commitment to share resources, knowledge and best practices to achieve this end.

Multilateral Cooperation

We also agree to establish a central point of contact in each of the BRICS Countries for coordination of issues relating to taxation. The central points of contacts will identify issues of common interest in areas of International Taxation and Transfer Pricing and will develop a common response, interact and meet regularly, including pre-meeting before important multilateral meetings. The agreed common response of the BRICS countries would be communicated to international organisations engaged in development of standards on International Taxation and Transfer Pricing.

Governance Issues

We agree to make a commitment to continue the process of cooperation in tax administration. We agree to establish a Governance Framework in accordance with the overall BRICS commitment by May, 2013.

We reiterate the spirit of cooperation and solidarity that underlies the BRICS partnership, and look forward to extend it to the area of tax administration in a way that will benefit the people and our countries and contribute to their overall wellbeing.

We also agree:

(i)  to inform the BRICS Summit of the outcomes of our deliberations; and

(ii)  to decide the date and place of next meeting BRICS Heads of Revenue after mutual consultation.