Action Plan 3 targets Base Erosion and Profit Shifting with stronger Controlled Foreign Company rules for international tax fairness.

Action Plan 3 focuses on strengthening Controlled Foreign Company (CFC) rules to combat Base Erosion and Profit Shifting (BEPS) in international taxation. CFC rules address the risk of profit shifting by taxpayers with controlling interests in foreign subsidiaries, often located in tax havens. These rules deem the income of CFCs as taxable in the parent entity's jurisdiction, particularly for passive income like interest and royalties. The OECD's BEPS report outlines six building blocks for effective CFC rules, including defining CFCs, exemptions, income definitions, income computation, attribution, and preventing double taxation. The recommendations aim to provide adaptable frameworks for countries to implement effective CFC rules. Currently, India does not have specific CFC rules in its Income Tax Act.

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