Country by country (CbC) reporting reaches Indian shores By Paresh - PowerPoint PPT Presentation

Country by country (CbC) reporting reaches Indian shores… By Paresh Parekh, Partner, EY March 2, 2016

CbC reporting ► BEPS Action 13 - background Contents ► Budget 2016 proposals ► Global overview Page 2 Budget Proposal 2016 – CbC reporting

BEPS - What is Action 13 and why does it matter? Action 13 focuses on TP documentation and includes the CbC report. Large amounts of previously ‘possibly undisclosed’ data suggested to be made available to tax authorities Action 13 is designed to increase Master file CbC report ► transparency by providing tax High-level information about the High-level authorities with sufficient information MNE’s business, transfer pricing information about to allow them to conduct transfer policies and agreements with tax the jurisdictional pricing risk assessments and authorities in a single document allocation of profits, consider whether groups have available to all tax authorities revenues, engaged in BEPS-type activities. where the MNE has operations employees and It requires companies to use a assets ► consistent three-tier framework for providing information on global allocation of income, economic activity Local file and intercompany pricing across all of Detailed information about the a company’s global operations. local business, including CbC reporting applies to multinational related-party payments and ► enterprises. receipts for products, services, royalties, interest, etc. Page 3 Budget Proposal 2016 – CbC reporting

Budget 2016 proposals - BEPS Action 13 arrives on Indian shores… Why : To provide tax administrations with useful information to assess transfer pricing risks. It will facilitate tax administrations to make determinations about where their resources can be most effectively deployed When: Next Steps: ► Applicable from 1 ► Rules for details Master File April 2016 (i.e. FY of master file & 2016-17) CbC reporting to & CbC reporting be prescribed ► CbC - Euro 750 mn [conversion rate – last date of year] What’s new: ► Section 92D(1) proviso – Master file containing standardised information relevant for all multinational enterprises (MNE) group members ► Section 286 - CbC report containing certain information relating to the global allocation of the MNE’s income and taxes paid together with certain indicators of the location of economic activity within the MNE group Page 4 Budget Proposal 2016 – CbC reporting

CbC reports – filing & exchange mechanism What Who When Filing CbC report in India for Indian resident which is parent Due date of filing return of income under ► ► entity of group (‘Indian parent’) section 139(1) [‘due date’] every reporting accounting year [section 286(2)] Alternate reporting entity, which ► is resident in India (‘Indian ARE’) Filing of CbC report in India in Constituent entity resident in India does not have agreement for exchange ► ► of report [‘ERA’] with country/territory of special cases by due date India not being Indian parent or [section 286(4)] Indian ARE parent entity of group or Systemic failure of country or territory to ► automatically exchange CbC report AND, Constituent entity is notified of failure ► by Indian tax authorities Exchange of CbC report Parent entity files CbC report in CbC report to be automatically exchanged ► ► through ERA between Parent the country of its tax residence through ERA entered into between India and parent entity’s country country and India Exchange of CbC report ARE files CbC report in the Report is required to be filed in ARE country ► ► through ERA entered into country of its tax residence and India has ERA with ARE country between ARE country and No systemic failure of exchange of report ► India [section 286(5)] Indian tax authorities are notified about ARE ► by Indian constituent entity Page 5 Budget Proposal 2016 – CbC reporting

CbC reporting – key definitions – section 286(9) Term Definition Group includes parent entity and all the entities in respect of which a consolidated Group ► financial reporting for financial reporting purposes is prepared or would have been prepared (if in case equity shares would have been listed on stock exchange) International group Two or more enterprises which are resident of different countries/territories or ► Enterprise being resident of one country/territory carrying on business through ► permanent establishment (PE) in other countries/territories Entity of the group holding directly or indirectly an interest in one or more of the Parent entity ► other entities of the group such that it is required or would have required(if in case equity shares would have been listed on stock exchange) to prepare consolidated financial statements as per laws in force/accounting standards of country/territory of which entity is resident Constituent entity Any entity of international group ► ► that is included in consolidated financial statement ► that is excluded from consolidated financial statement on the basis of size or materiality ► that is PE of any separate business entity and such PE prepares separate financial statement for financial reporting, regulatory, tax reporting or internal management control purposes ARE A constituent entity that has been designated to furnish CbC report in place of ► parent entity in country or territory in which such constituent entity is resident Page 6 Budget Proposal 2016 – CbC reporting

CbC report template Table le 1: Revenu nues es Tan angib ible e asse ssets s other Accumulat ated Prof ofit it (loss ss) before re Number of Cash Tax Paid Current year tax Stat ated ed Tax jurisd sdict iction on than cash th h an and cash h earnin ings (CIT and WHT) accrual al employees income me tax ax capit ital Unrelat lated party Related party Total al equivale alents 1. 2. 3. 4. 5. Table e 2: Tax Main business activity(ies) jurisdiction of financial services unrelated parties Sales, marketing Admin., Mgmt or support services Holding shares or other equity Constituent organization Purchasing or Internal group procurement managing IP Provision of instruments production services to Holding or Regulated Insurance entities or Dormant or distri. finance Tax Mfg or R & D Other resident in incorporation jurisdiction the tax if different jurisdiction from tax jurisdiction of residence 1. 2. 3. 1. 2. Page 7 Budget Proposal 2016 – CbC reporting

BEPS - Master File – information required Organization Business description Intangibles Intercompany Financial and tax structure financial activities positions Structure Important drivers of Overall strategy Financing Annual chart: business profit description arrangements for consolidated the group financial statements ► Legal Supply chain of: List of important Identification of List and description of ownership ► 5 largest products/services by intangibles and financing entities existing unilateral ► Geographic turnover legal owners Advance Pricing ► Products/services generating location Agreements (APAs) more than 5% of turnover and other tax rulings Main geographic markets of List of important Details of financial above products intangible transfer pricing policies agreements List and brief description of R&D and intangible important service arrangements transfer pricing policies Functional analysis of principal Details of important contributions to value creation by transfers individual entities Business restructuring/ acquisitions/ divestitures during fiscal year Page 8 Budget Proposal 2016 – CbC reporting

Foreign HQ MNCs and Indian HQ MNCs – requirements summary MNCs Upfront notification Annual filing • Master file Inbound • Whether it is ARE of the • Local file MNCs international group; or • CbC report only if • Details of the parent entity or ARE or in cases of the ARE of the international failure of exchange group and the country and mechanism territory of which the said entities are resident • CbC report Outbound - • Master file MNCs • Local file Page 9 Budget Proposal 2016 – CbC reporting

Indian HQ MNCs – possible issues Data collection in respect of each country in which Indian MNE group has ► operations Availability of software/ERP database packages? ► Mapping data in respect of PEs separately ► Identification of outliers in advance and entity structure rationalization, if ► required Consistency ► Sustainability ► Higher degree of scrutiny by transfer pricing authorities to check consistency ► in transfer pricing policy of MNE group across countries Accounting seconded employees and contract workers? ► Accounting of joint ventures and special events like assets or entity ► disposals? Regular check on Action 13 implementation by different countries to avoid ► mismatch/non-compliance Page 10 Budget Proposal 2016 – CbC reporting