—Guide
BEPS in India: MLI, CbCR and the End of the Equalisation Levy
How the OECD's BEPS project has shaped Indian international tax: the MLI and principal purpose test, three-tier TP documentation, and the equalisation levy's abolition.
Over the past decade, the OECD/G20 project on base erosion and profit shifting — BEPS — has changed international tax rules around the world, and India has been an active participant. This guide summarises how BEPS has shaped the Indian rules businesses deal with today.
The Multilateral Instrument (MLI)
The MLI modified many of India's tax treaties at once, introducing anti-abuse and other provisions without renegotiating each treaty. The most significant for businesses is the principal purpose test, which lets treaty benefits be denied where obtaining them was one of the principal purposes of an arrangement.
Three-tier Transfer Pricing Documentation
Following BEPS, India introduced:
- The local file: each entity's transfer pricing documentation.
- The master file: an overview of the group's business and transfer pricing, for larger groups.
- Country-by-Country Reporting: country-level data for groups above the revenue threshold, exchanged between tax authorities.
Permanent Establishment Changes
BEPS also led to changes in how permanent establishments are defined, including the dependent agent test covering those who play the principal role in concluding contracts, and anti-fragmentation rules, through treaties modified by the MLI.
Significant Economic Presence
India introduced significant economic presence as a form of business connection under domestic law, aimed at digital businesses. Treaty rules generally prevail where more beneficial.
The Equalisation Levy
India introduced an equalisation levy on online advertising services in 2016, and extended it to e-commerce operators in 2020. The e-commerce levy was withdrawn from August 2024, and the levy on online advertising was abolished from 1 April 2025, as international discussions on taxing the digital economy moved on.
Pillar Two
The latest stage of the BEPS work, the global minimum tax, affects Indian entities of large multinational groups, as described in our separate guide.
What It Means for Businesses
- Treaty claims need commercial substance.
- Transfer pricing documentation is more detailed and more visible across countries.
- PE risk needs attention as working patterns change.
Getting Help
Think Filing advises Indian businesses and multinational groups on international tax in the post-BEPS environment.