BEPS Actions 8-10 - 3 ways for India to bite the bullet


With OECD’s BEPS project making headway in the taxation world of multinational businesses, many countries are picking up the baton and implementing the recommendations in the BEPS Action Plans. Following suit, India has so far implemented Action 13 on Country-by-Country Reporting (CbCR) and introduced measures for equalisation levy (Action 1), a patent box incentive regime (Action 5) and limitation on interest deductions (Action 4). Further, the recently updated India Chapter in UN Manual highlights India’s endorsement of Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation), with the caveat that India will not be opting for the simplified approach for low value-adding intra-group services (IGS) set out in Action 10. Even before BEPS project was initiated, Indian Revenue has taken a consistent view on 'substance over form' which is reflected in the circular on R&D and intellectual property. 

Considering India's commitments towards BEPS and given the fact that Budget  2017 did not propose any specific amendments to the Income Tax Act relating to BEPS Action Plan 8-10,  it would be relevant to see how India implements transfer pricing measures proposed in BEPS Action Plan 8-10. 

In this backdrop, do you think that India needs to make separate legislative changes in the Income Tax Act to implement BEPS Action Plan 8-10 or will modification to the transfer pricing rules would be sufficient? Which are the 3 most important aspects that India should introduce in the Indian transfer pricing law? Do you think the simplified approach for low value-adding IGS is the need of the hour?