India hails G20 stand on taxation of multinational companies

India on Friday said the stand taken by the G20 nations that profits of multinational companies should be taxed where economic activities deriving the profits are performed and where value is created is an "important landmark" and it validates the country's position.

Acknowledging that effective taxation of mobile income is a key challenge, the G20 leaders including Prime Minister Manmohan Singh vowed to take steps to change rules to tackle tax avoidance, harmful practices and aggressive tax planning.

"Profits should be taxed where economic activities deriving the profits are performed and where value is created," the declaration adopted at the end of the summit of Group of 20 developed and major developing countries said.

Referring to the stand taken by G20, Economic Affairs Secretary Arvind Mayaram told reporters that every country has the right to tax profits made in their territory and it is a well accepted principle.

"It validates our position that we are going to tax profits made in India. Our aspiration (on this issue) is valid," he said, describing the G20 position as an "important landmark."

The declaration said tax rules should not allow or encourage multinational corporations to reduce overall taxes paid by artificially shifting profits to low-tax jurisdiction.

"Cross-border tax evasion and avoidance undermine our public finances and our people's trust in the fairness of the tax system," said the declaration which devoted two pages of the 27-page document on the issue of addressing Base Erosion and Profit Shifting (BEPS), tackling tax avoidance and promoting tax transparency and automatic exchange of information.

The G20 countries were asked to examine how their own domestic laws contributed to BEPS and to ensure that international and their own tax rules did not allow or encourage multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdiction.

"We acknowledge that effective taxation of mobile income is one of the key challenges," the declaration adopted at the summit hosted by Russia said.

The declaration said that in the context of severe fiscal consolidation and social hardship ensuring that all tax payers pay their fair share of taxes is more than ever a priority in many countries.

"Tax avoidance, harmful practices and aggressive tax planning have to be tackled," the declaration said. "Developing countries should be able to reap the benefits of a more transparent international tax system, and to enhance their revenue capacity, as mobilising domestic resources is critical to financing development," it added.