Country-by-Country Reporting Rules on BEPS.pdfCountry-by-Country Reporting Indian Rules on BEPS requirements 2 In Brief The BEPS project was conceived out of significant concerns surrounding

1© 2018 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

Country-by-Country Reporting

Indian Rules on BEPS requirements

2

In Brief

The BEPS project was conceived out ofsignificant concerns surroundingmultinationals abuse of mismatchesbetween tax regimes across jurisdictionsand the exploitation of the gaps in the taxtreaty network. India has always supportedBEPS since inception and has played aleading and intensive role in theformulation of its proposals, and iscommitted to implement the “minimumstandards” of the Action Plan, includingcountry-by-country (CbCR) reporting.

Reiterating India’s commitment toimplement the OECD’s BEPS Action Plan 13,the Indian Central Board of Direct Taxes(CBDT) has prescribed the rules formaintaining and furnishing the Master File(MF) and Country-by-country (CbC) Reportin respect of an international group.

It is commendable, on part of CBDT, toconsistently follow an inclusive approachand seeking public comments whenintroducing a new and importantregulation. In the draft rules circulated onOctober 6, 2017 the CBDT had proposedinsertion of New Rules 10DA and Rule 10DBof the Income-tax Rules, 1962 (the Rules),and the new Forms were prescribed i.e.Form Nos. 3CEBA to 3CEBE. The final rulesin relation to CbCR guidelines have beennotified on October 31, 2017.

© 2018 NBC, Chartered Accountants and member of Allinial Global Accounting Association. All Rights Reserved.

Tax Insight on Transfer Pricing

While in principle there are no majordifferences in the draft rules andfinal rules, however a careful readingand comparison reveals certain keychanges which have an impact on thenature and extent of disclosuresrequired to be made. The notificationof CbCR is likely to significantlyincrease the compliance burden forMNC subsidiaries and Indian MNCGroups and shall require them to re-strategize their transfer pricing policyin light of heightened disclosurenorms laid down under the CbCR /Master File regime.

3

In detail

Master File

Threshold for Master FileThe MF will be applicable to everyconstituent entity (CE) of aninternational group (IG) [whetherinbound- having a parent entityresident in a jurisdiction other thanIndia, or outbound- having a parententity resident in India], subject to thefollowing two conditions:• Consolidated group revenue of the

IG in the accounting year exceedsINR 5 billion. The final rules clarifiesthat the exchange rate forcalculating the consolidated grouprevenue in rupees shall be thetelegraphic transfer buying rate ofsuch currency on the last day of theaccounting year; and

• The aggregate value ofinternational transactions of the CE during the accounting year (as

per the books of accounts)exceeds INR 500 million or

in respect of purchase, sale,transfer, lease or use ofintangible property during theaccounting year (as per thebooks of accounts) exceeds INR100 million


Observation: For inbound groups, theprescribed consolidated grouprevenue threshold is quite low andcould result in some groups beingrequired to prepare a MF only forIndia.

Information and Documents RequiredThe documentation prescribed inrespect of the MF is largely in linewith the OECD’s final BEPS Action 13report, but with the followingadditional requirements:• Description of the functions

performed, assets employed, andrisks assumed by CEs of theinternational group thatcontribute to at least 10 percentof revenues or assets or profitstaken on an individual basis. Bycontrast, the OECD requires adescription of principalcontributions to value creation byindividual entities of the group.

• List and address of all entities ofthe international group (ratherthan that of ‘operating entities’).


4

• List of all entities of theinternational group engaged indevelopment and management ofintangibles along with theiraddresses.

• Names and addresses of the top tenunrelated lenders.

• The Indian MF has, in severalinstances, warranted the need for‘detailed’ information as against‘general description’ required by theOECD.

Observations: With respect to thedescription of functions performed,assets employed, and risks assumed,the financial metric of 10 percentprovides a definitive de minimisthreshold, which the OECD Action 13report does not. However, it couldcreate a greater compliance burden forgroups, since this documentationrequirement differs from what isspecified under Action 13, where therequirement is only to provide a brieffunctional analysis describing theprincipal contributions to value creationby individual entities in the group. Inaddition, revenue, assets, and profitsmay not have consistent definitionsacross jurisdictions, which may lead toinconsistent results when applying the10-percent threshold.



With respect to intangibles, the focusseems to be not only on legalownership of intangibles, but also ontheir economic ownership.

With respect to financingarrangements, clarity is needed on theterm ‘lenders.’

Overall, since the Indian rules prescribeMF requirements over and above theOECD template, the compliance burdenwill be higher, because globallyprepared MFs will need to becustomized for India.

Filing specifications• The MF is to be filed electronically,

and the procedures to do so will bespecified.

• The prescribed form contains twoparts: Part A and Part B. Part Arequires generic information aboutthe CEs in India, and Part B relatesto the content of the MF.

• Where there are multiple CEs inIndia of the same group, the rulesprovide an option to designate a CEresident in India to undertake theMF compliance on behalf of thegroup. The designated CE mustfurnish the MF to the specifiedIndian Revenue Authority.

Observations: The option of havingonly the designated entity toundertake the MF-relatedcompliances instead of all CEs of thegroup is a welcome move, as it willprovide administrative relief withrespect to filing of MF for groups thathave multiple entities operating inIndia.

However, by referring to CEs ‘residentin India,’ the rule seems toinadvertently not cover non-residentCEs of an international group (that arerequired to undertake tax and transferpricing compliances in India), who willhave to file both Part A and Part B ofthe form for furnishing the MF on anindividual basis, thereby increasingtheir compliance burdens.



Security of information filed in the MFSpecified income-tax authorities shallbe responsible for developing andimplementing appropriate security,archival and retrieval policies in relationto the information furnished in the MF.

Observation: Various stakeholders hadraised concerns about theconfidentiality and security ofinformation filed as part of the MF. It isa significant positive that the rules havespecifically spelled out that theresponsibility for holding security ofsuch information lies with the Indianincome-tax authorities.


Who What When To Whom

A CE (irrespective of:Whether the entity has entered into an international transaction threshold applicability,Whether the entity is resident or not)

Part A of Form No. 3CEAA

By due date of furnishing Return of Income (ROI), except for FY 2016-17, for which the deadline is on or before March 31,2018(Refer Note 1)

Director General of Income-Tax, Risk Assessment (DGIT, RA)

A CE passing the prescribed thresholds

Part B of Form No. 3CEAA

By due date of furnishing Return of Income (ROI), except for FY 2016-17, for which the deadline is on or before March 31,2018

DGIT, RA

The designated entity, where there are multiple CEs resident in India

Form No. 3CEAA(Part A and B)

Form No. 3CEAB

Form 3CEAA- by due date of furnishing Return of Income (ROI), except for FY 2016-17, for which the deadline is on or before March 31,2018

Form No. 3CEAB - at least 30 days before the due date of filing Form No. 3CEAA, except for FY 2016-17, for which the deadline is on or before March 1, 2018

DGIT, RA

Indian MF compliance requirements at a glance

Note 1: The MF filing due date has been aligned to the due date for filing the ROI. It also seems that the MF filing has been contemplated for a reporting accounting year that is the same as the Indian FY (i.e., April to March).


7

Country-by-Country (CbC) report

Threshold for CbC reportThe CbC report provisions apply wherethe total consolidated group revenue ofthe international group is INR 55 billionor more in the CFS of the precedingaccounting year. The rules also provideclarity on the foreign exchangeconversion date and rate to be used tocompute threshold of INR 55 billion ofthe international group.

Observation: Although many countrieshave followed the Euro 750 millionthreshold, India has established itsthreshold in local currency. This may notfully align with the Euro 750 millionthreshold, due to exchange ratemovements or because of rounding.


Information requestedThe details of the CbC report areconsistent with the OECD’s final BEPSAction 13 report. The CbC report andrelated forms are to be filedelectronically, procedures for which willbe specified.

Security of information filed in the CbCreportThe specified income tax authorities shallbe responsible for developing andimplementing appropriate security,archival, and retrieval policies for theinformation furnished in the CbC report.


8


Who What When To Whom

CE resident in India, which is part of an international group and whose parent is a non-resident (Refer Note 1 below)

Form No. 3CEAC(Notification)

At least two months prior to the due date of furnishing ROI, except for FY 2016-17, for which the deadline is on or before January 31, 2018

Director General of Income-Tax, Risk Assessment (DGIT, RA)

Parent entity, or alternate reporting entity, that is:resident in India; and part of an international group, the consolidated group revenue of which exceeds the prescribed threshold

Form No. 3CEAD (CbCreport)

By due date of furnishing Return of Income (ROI), except for FY 2016-17, for which the deadline is on or before March 31,2018

DGIT, RA

CE resident in India, that is part of an international group and whose parent is non-resident [and if conditions of section 286(4) of the Indian Income-tax Act (‘the Act’) are satisfied]

Form No. 3CEAD (CbCreport)

Filing date will be contingent to the provisions of section 286(4) of the Act

DGIT, RA

The designated entity, where there are multiple CEs resident in India that are part of the same international group and whose parent is non-resident [and if conditions of section 286(4) of the Act are satisfied] (Refer Note 2 below)

Form No. 3CEAE(Intimation)

Not specified, as the filing date will be contingent to the provisions of section 286(4) of the Act

DGIT, RA

Indian CbC Report compliance requirements at a glance


Notes continued..

9

Note 1: The notification allows the inboundCE resident in India to disclose upfront forwhich period its group’s CbC report will beprepared. This information should helpIndian Revenue Authorities to track CbCRreporting requirements in the parent entity’sjurisdiction with respect to inbound groups.

Note 2: The Indian Regulations provide forfiling of the CbC report by an inbound CEresident in India in the following situations:

The parent entity of the international groupis a resident of a country with which Indiadoes not have an agreement providing forexchange of CbC report; or

There is an exchange framework with thatcountry but there has been a systemicfailure in exchanging information.In those situations, the CbC report shall befurnished by the inbound CE resident inIndia within the specified time. Where thereare multiple CEs resident in India that arepart of the same international group, thedesignated CE needs to file the CbC reportand file an intimation to that effect in FormNo. 3CEAE with the specified Indian revenueauthority.

The due date of filing the CbC report by aninbound CE resident in India has not yetbeen explicitly notified.



10


The takeaway

Some aspects of the Indian rules appear to requiremore data than the OECD requirements. There is aneed to strike a balance between the provision of moredata on the one hand (which will carry a highercompliance burden), versus data that is sufficient for arisk assessment.

With the new rules, both inbound and outboundentities operating in India will need to maintain anddisclose a significant amount of information. This willrequire entities to ensure they have the capability toexecute, especially from the perspective of humanresources and technology.

For the MF, considering the additional Indianrequirements, groups could consider preparing an Indiasupplement to the MF which captures the additionalinformation prescribed under the Indian rules. Thiswould allow the group’s ‘OECD compliant’ MF to remainintact.


11


Some issues that need clarification

There still remain certain ambiguitiesin the final rules with respect toapplicability and preparation andfiling of Master File and CbCR. Whilesuitable recommendations weremade in this regard while providingcomments on the draft rules, thefollowing issues do not seem to havebeen addressed:• Due date of filing Form 3CEAE has

not been prescribed.

• There seems to be certainambiguity on applicability of theMaster File provisions to branch/permanent establishment offoreign companies in India. Whilethe proviso to sec 92D(1) of theAct and sub-rule (1) of rule 10DAcovers constituent entities of anIG, the sub-rule (4) of rule 10 DAspecifically covers ‘constituententities resident in India’. Theinconsistent use of the relevantterm ‘resident in India’ bringsambiguity.

• Further, clarity is required w.r.t. theterm ‘accounting year’ [to be readas defined in sec 286] when usedin relation to the Master Filesecond threshold (internationaltransaction/ intangible relatedtransactions exceeding INR 500mn/ INR 100 mn). For CEs offoreign parent companies, the‘accounting year’ as defined by sec286 would mean the annualaccounting year generally followedby such foreign parent in itscountry of residence. For an Indiaconstituent entity, following Aprilto March fiscal year, theaggregation of internationaltransactions on any other basis(calendar year or so) would be asignificant challenge.

In view of stringent penaltiesassociated to non- compliance ofMaster File and CbCR requirements, itwould be prudent for CBDT toemphatically clarify above issues so asto avoid any ambiguity or unintendedhardship for taxpayers.


12

Our Offices in India

New Delhi:S-13, St. Soldier Tower, G-Block CommercialComplex, Vikas Puri, New Delhi – 110018(India)

Phone : +91 11 28543739: +91 11 28544939: +91 11 45527239

Fax : +91 11 43850030

Gurgaon:1156, Tower B2, 11th Floor, Spaze I Tech Park,Sohna Road, Sector 49, Gurgaon-122001,Haryana (India)

Phone : +91 124 4371317+91 124 4371318

Fax : +91 11 43850030

Mumbai:Unit No.3, 1st Floor, New Laxmi ShoppingCentre, A-Wing, H.D.Road, Ghatkopar (W),Mumbai – 400086 (India)

Phone : + 91 98202-63544: + 91 22-25110016

E-mail : [email protected] site : www.neerajbhagat.com


Neeraj Bhagat & Company is a team of distinguished chartered accountant, corporate financial advisorsand tax consultants in India. Our firm of chartered accountants represents a coalition of specialized skillsthat is geared to offer sound financial solutions and advices. The organization is a congregation ofprofessionally qualified and experienced persons who are committed to add value and optimize thebenefits accruing to clients.We are prominent Chartered Accountants in India. We offer services of accounts outsourcing, auditing,company formation in India, Business taxation, corporate compliance, starting business in India,registration of foreign companies, transfer pricing, tax due diligence, taxation of expatriates etc.

Neeraj Bhagat is a member of the Institute of Chartered Accountants of India (ICAI) since 1997. He is alsoan Associate member of Association of International Accountants, United Kingdom. He is founder ofNeeraj Bhagat & Co, an Indian Chartered Accountancy firm serving various MNC’S from across the globe.Neeraj Bhagat & Co. has its offices at New Delhi, Gurgaon and Mumbai. They are part of Allinial GlobalAccounting Association which is one of the World's Top 10 in accounting associations.

mailto:[email protected]

http://www.neerajbhagat.com/