Loophole Games - A Treatise on Tax Avoidance Strategies (2nd Edition)

First edition of Loophole Games was released in April 2019 with loft ambitions of informing business managers, professionals, forensic auditors, and journalists about the extent to which the malaise of tax avoidance has spread its tentacles in India and around the world. Many interesting and structural changes have happened in the world of taxation in this last one year, which prompted me to review the book and come out with an updated edition. The year 2019 saw a sizeable reduction in corporate tax rates in India. The new regime India brought in the year was quite ingenuous. The primary challenge that lawmakers face in designing a national budget is finding a balance between reducing tax rates and providing incentives to priority sectors. The Akhilesh Ranjan Committee on direct taxes had recommended reduction of corporate tax rate and removal of all tax incentives. But the plethora of deductions and exemptions available to various industries cannot be removed overnight. They can only be phased out in a staggering manner. To resolve this dilemma, lawmakers in India have brought a new regime with low tax rate and no incentive, but this new regime does not replace the old regime. The taxpayer has been given the power to choose between the new and the old regime, thus giving more power and discretion to taxpayers. This policy, in a way, pushes for bothcontinuity and change. In line with the recommendations of the Akhilesh Ranjan Committee, the dividend taxation regime has also been changed from dividend distribution tax system to the classical system of taxing dividend.

Tectonic changes are happening internationally. Many countries have introduced levies on sales of digital companies, variously called as equalisation levy and digital service tax. There is an international consensus that such stopgap approach cannot be a substitute for a principle-based solution to tax the digital economy, but no singular solution has still been implemented. Equalisation levy presents its own challenges in implementation, especially since imposition of the levy on non-resident e-commerce operators in India in April 2020. Multilateral Instruments (MLIs) between various countries will start becoming effective from April 2020. It is to be seen how the Principal Purpose Test (PPT) clause, antifragmentation rule, new definitions of Permanent Establishment (PE) will play out in preventing treaty abuse.

This updated edition critically analyses these recent developments, and the fault lines, if any, that rogue consultants seek to take advantage of.