Emergence of cross-border taxation and firm behaviour

The chapter discusses the evolution of Base Erosion and Profit Shifting (BEPS) from an emerging market (EM) perspective. It shows how treaties meant to prevent double taxation were used for double non-taxation and the problem was especially severe in EMs. It presents evidence of BEPS in India using firm level panel data. Since one country acting alone can frighten away foreign capital, global co-ordination is necessary. This makes BEPS one of the most productive initiatives G-20 has taken up. It aims to build global norms and agreements to ensure that taxes are paid where profit is earned. India should reform its corporate tax and regimes and bilateral investment treaties in line with international developments even while simplifying them and making them more business friendly.