MUMBAI: Indian companies setting up operations overseas and, in the process, resorting to aggressive tax planning via investment structures to mitigate their tax liability could find themselves in the harsh spotlight of the taxman.“We now need to think of preserving and augmenting our tax base. We have to look at the Indian industry, which is launching globally. We haven’t yet paid much attention to this part of tax compliance (relating to outbound investments). We have been more focused on inbound investments,” said Akhilesh Ranjan, member (legislation), Central Board of Direct Taxes CBDT ).Ranjan is also convener of the task force for drafting a new direct tax code DTC ). “It is now time to look at what mechanism Indian industry is employing to reduce its tax liabilities. If there are loopholes in the law, we need to take measures to safeguard against that,” he added.Speaking at a tax conference organised by the Foundation for International Taxation (India) jointly with The International Bureau of Fiscal Documentation, Ranjan provided a broad road map of the possible future developments in the tax arena, especially in international tax. Overseas investments by India Inc are quite significant. According to the RBI’s statistics, outward foreign direct investment (comprising equity, loans and guarantees) stood at $1,757 million in October this year as compared to $1,962 million in October 2017.Speaking to TOI on the sidelines of this conference, Ranjan elaborated that aggressive tax planning, which results in parking of funds — such as by way of royalty payment to related entities in tax-favourable jurisdictions — is one of the issues that could be examined. He pointed out the measures taken by the US as part of its tax reforms to curb revenue leakage and garner its share of tax through BEAT.While no tax proposal will be rushed into, the process of examination and deliberations on steps that can be taken to prevent revenue leakage appears to have begun. In order to curb forex outflows , plans to curb excessive royalty payments to related parties overseas by prescribing limits is already on the agenda of the government.Referring to the current hot topic in the tax arena — the challenges of taxation in a digital economy — the CBDT member said, “You cannot ring-fence a digital economy. Business itself has become digital.”India has in place an equalisation levy, which is imposed at 6% on B2B advertisements, where payments made by the Indian entity to a foreign company exceeds Rs 1 lakh in a year. Ranjan referred to this as an interim measure and pointed out the importance of the concept of ‘significant economic presence’ for determining tax incidence.Under new digital business models, a non-resident company can carry on a business and interact with customers in another country without having a physical presence in that country. India’s long-standing position in international tax discussions is that the value of digital business is also created by the purchasing power of the market where the goods and services are consumed.It may be recalled that on July 13, CBDT invited comments and suggestions on ‘significant economic presence’, which would trigger a tax liability for the foreign entity. India had introduced this concept under section 4 of the Finance Act 2018. CBDT has sought feedback on the revenue threshold of transactions that would denote significant economic presence and the threshold for number of users. “We are currently examining this and hope to come up with a viable business model. In addition, we continue our dialogue with the international community,” Ranjan said.