Country-by-Country Reporting – So near and yet so far!

February 13,2018
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Kunj Vaidya (Transfer Pricing leader, PwC India)

The article is also contributed by Eric Mehta (Partner, Price Waterhouse & Co LLP), Sandeep Puri (Partner, Price Waterhouse & Co LLP) and Abhishek Jain (Director, Price Waterhouse & Co LLP).

The Government has announced certain changes in respect of Country-by-Country Report (CbCR) during the recent Fiscal Budget 2018. While most of these are welcome changes and in line with the Government’s initiative of ease of doing business, a few of them have surprised many and may clearly act as a deterrent.

To begin with, extending the timeline to furnish the CbCR by an Indian multinational group to 12 months from the end of the accounting year is welcomed and now in line with timeline suggested in the Action Plan 13 of the OECD’s Base Erosion and Profit Shifting (BEPS) Project. This results in removing the disadvantage that Indian multinational group were faced with when compared to their global counterparts and also certainly eases the compliance burden. Also, the Government has relaxed the due date for filing CbCR in case of an overseas multinational group which has designated an Alternate Reporting Entity (ARE) to be the due date of the jurisdiction of the ARE. Both these changes have removed potential bottlenecks and are commendable.

That said, there was a need to delink the Master File (MF) filing deadline with the return filing deadline as the information contained in the MF is not necessarily linked to international transactions of the taxpayer. A similar 12 month timeline for MF could be proposed along with increasing the INR 5 Billion consolidated annual group revenue threshold for furnishing MF in India. Also, the Government could have relaxed the MF filing requirement for non-resident entities particularly when all requirements pertaining to local files and TP certification have been complied with. So clearly a few missed opportunities with respect to the MF.

Another missed chance is introduction of multi-year TP audits. This was expected as it would have been a natural progression from the introduction of the use of multi-year data and risk based selection for TP audits a few years back. Multi-year TP audits allows to consider the impact of the economic aspects of pricing and business strategies employed over a multi-year period. This would have benefitted not just the taxpayers but also provide a good visibility of the tax payer’s facts to the tax authorities which is required given the inherent subjective nature of TP audits.

Coming back to the announcement in relation to Action plan 13 of the OECD’s BEPS project, what’s been the most debatable announcement is the requirement for a constituent entity resident in India of a non-resident parent to furnish CbCR in India in case its parent entity outside India has no obligation to file CbCR in that jurisdiction. While this announcement itself may be received with increased anxiety and there may be question as regards India’s jurisdiction to seek such compliance, it appears that this requirement is largely in line with the Action Plan 13 of the OECD’s BEPS project.


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