'US companies may reinvest more of their profits in India'
KPMG’s Global Tax Head Wilbert H. A. Kannekens was in India last fortnight. He spoke about the raging issues in cross-border taxation. Excerpts:
Will the Obama Administration’s proposed changes in tax rules concerning outsourced jobs drive away such jobs from India?
The proposals are focussed on levying taxes on the profits the US companies make offshore for plugging the “gaping deficit”. The concerns about job losses seem to be unfounded. One of the effects could even be that it makes the US companies keep more of their profits offshore to avoid paying the taxes and reinvest them in amounts greater than they do at present. Or it could make them divest their Indian operations to third parties. The jobs could then still stay here.
Will international pressure on tax havens to hide less and tax more impact bilateral tax treaties?
Treaties will either have to be renegotiated or countries will try to limit the tax benefits to companies with activities located in the low-or-no tax jurisdictions. Renegotiation will be better than letting domestic laws overrule international treaties.
Are Indian tax rates amongst the most attractive in the world?
Foreign companies don’t perceive India as a low-tax country. An effective tax rate of about 22 per cent is not very high but not very low either. The key is how profits are determined for the purpose of taxation. Consistency and predictability of rules and the interpretation is more important.
