Budget 2018 - Proposed Amendments in CbCR regulation

February 06,2018
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Manisha Gupta (Partner, Transfer Pricing, Deloitte Haskins & Sells LLP)

Richa Gupta (Senior Director, Transfer Pricing, Deloitte Haskins & Sells LLP)

In the recently released World Bank rankings, India jumped to the 100th position in “Ease of doing business”. While it is an improvement of 30 places, the fact is that the seventh largest economy1 is behind 99 other countries in offering a business friendly environment. Deloitte had recently conducted a survey of 120 tax and finance professionals. In this survey, close to 50% of the respondents had voted tax litigation as the principal area where reforms are required. The Economic Survey 2017—18 also discussed in detail the high incidence of disputes caused by tax related litigation.

In this backdrop, it is significant to note that in the Budget memorandum, explanation for the proposed amendments to Section 286 is included under “Rationalization measures”. The memorandum mentions that these amendments have been proposed with a view to “increase effectiveness and reduce the compliance burden arising from these provisions”. However, a minute reading of these amendments shows that there are still several grey areas, which if not clarified, may lead to an increase in compliance burden, especially for the Indian inbound entities that are part of foreign headquartered Multinational Corporations (“MNC”).

We have attempted to analyse the implication of these amendments on Indian taxpayers. The following analysis is divided into two main sections: the first part analyses the impact on Indian headquartered MNCs; the second part discusses the consequent compliance for foreign headquartered MNCs.

A) Implications for Outbound MNC Groups

The overall scheme of Country by Country (“CbC”) reporting is to ensure that there is a common pool of information that is available to tax authorities of all jurisdictions where an MNC has presence. The Organisation for Economic Co-operation and Development (“OECD”) that has come up with this innovative tool of CbC Report has prescribed the format, the content, the timeline as well as the monetary threshold for such a report to be prepared. The minimum standard of compliance as agreed with nations by OECD includes the standards on usage of CbC report. Almost all countries, India included have framed their local country regulations to be in accordance with the guidelines laid down by OECD.

On the timeline front, a parent entity resident in India was previously required under the law to file the CbC report by the due date of filing the income tax return i.e. 30 November following the relevant fiscal year. Budget amendments propose to extend the due date to 12 months from the end of the reporting accounting year, which would be 31 March following the relevant fiscal year. The due date was already extended to 31 March 2018 for the Financial Year 2016-17, which will now be applicable for all going forward years.

This is a welcome step and aligned with the recommendation of the OECD per its report on CbC reporting: Handbook on effective implementation (“OECD CbC Handbook”) where the timeline is suggested to be 12 months after the last day of the group’s reporting fiscal year.


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