The 11-member Brics grouping is creating new platforms for cooperation on international taxation, transfer pricing and revenue data. Brics accounts for about 39% of global GDP on a purchasing power parity (PPP) basis.
Mint explains the move and its significance, which could give major emerging economies a more structured way to compare tax practices, share data and coordinate their positions on cross-border taxation. This, in turn, could influence how members administer existing rules and, potentially, how international tax rules are debated and designed.
Why does cross-border taxation need cooperation?
A company may be headquartered in one country, manufacture in another, sell in several markets and hold its intellectual property elsewhere. Tax authorities therefore face a basic question: which country should tax which part of the company’s profits?
This becomes harder when transactions take place between companies belonging to the same multinational group. A subsidiary may pay an overseas affiliate for technology, financing, management services or raw materials. The price assigned to these transactions affects how much profit is recorded in each country.
This is where transfer pricing comes in. Tax authorities assess whether related-party transactions are priced broadly as they would be between independent companies. If not, they can adjust the taxable profit.
Different countries can, however, reach different conclusions about the same transaction, resulting in disputes and potentially double taxation.
comprises 11 countries, which includes Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, the United Arab Emirates, Saudi Arabia and Indonesia. Among these, India is the second-largest economy in the grouping after China.
What is Brics setting up?
Brics is setting up two working groups: one on international and transfer pricing and another on revenue statistics.
The first will provide a platform for sharing experience on treaty interpretation, transfer-pricing audits, advance pricing agreements (APAs) and mutual agreement procedures (MAPs), as well as multilateral tax negotiations.
An APA allows taxpayers and tax authorities to agree in advance on the pricing of certain related-party transactions. MAP is a mechanism for resolving cases where cross-border income is taxed differently by two countries.
The revenue statistics group will focus on improving comparability of tax and revenue data across Brics economies.
Why is tax data important?
Tax policy depends not only on laws but also on data on who pays taxes, where revenue comes from and how tax systems perform.
Comparisons can be difficult because countries have different tax structures. A common Brics dataset could help members compare revenue mobilization, tax bases and the impact of tax policies. Such data could provide emerging economies with stronger evidence when arguing for changes to international tax rules.
Where does profit attribution come in?
This is one of the difficult questions in international taxation.
Suppose a multinational earns ₹1,000 crore from customers in India but has employees, technology, financing arrangements and intellectual property spread across several countries. How much of its profit should be attributed to its Indian operations?
Transfer-pricing rules deal with the pricing of individual transactions. The broader question is where the resulting profits should ultimately be taxed.
This becomes more complicated for digital businesses, which can have millions of customers in a country without a large physical presence there. Better Brics data and greater sharing of transfer-pricing experience could eventually make such assessments more evidence-based.
Why does this matter for digital taxation?
The traditional international tax system was largely built around physical business activity. Digitalization has made that model harder to apply.
Technology companies can serve customers in a country without the physical presence traditionally associated with generating taxable income. For Brics economies, many of which are large consumer markets, better data on where revenues are generated and takes place could strengthen their position in international tax negotiations.
Can Brics influence global tax rules?
If the new groups remain limited to information-sharing, their impact will be modest. But if they develop common datasets, identify recurring problems and gradually build common positions, they could become a stronger negotiating platform.
For Indian businesses, the immediate impact is unlikely to be a new tax or a change in tax rates. The potential benefit is greater certainty in cross-border transactions and fewer differences in how tax authorities interpret similar issues. At the same time, greater information-sharing could mean closer scrutiny of multinational groups.
What do experts say?
“Brics’ misalignment has deepened with the enlargement. The grouping lacks a permanent secretariat with dedicated expertise, funding and negotiating authority. Without that institutional core, no one expects the working groups with medium ranked bureaucrats to deliver cross-border measurement and transfer mechanisms,” said Manish Sharma, professor of economics at Hosei University in Tokyo.
“This could give Brics countries a stronger perspective on digital and other new-age forms of taxation. The development is therefore not simply about creating another tax forum. If the initiative develops over time, Brics could create a parallel infrastructure for comparing and examining how profits are taxed across borders,” said Sanjay Kumar, a retired IRS officer, sees a longer-term possibility in the initiative.
Kumar further said that the initiative could eventually mark a shift “from cooperation between tax administrations to cooperation on the broader architecture of international taxation. Transfer pricing could become more data-driven, with profit attribution emerging as an important area.