In India, Finance Act, 2016 added section 286 of the Income-tax Act, 1961 and includes rules for certain multinational corporate groups filing a country-by-country (CbC) report. A provision of section 286 provides that the due date for filing the CbC report is to be tied to the “due date” for filing the income tax return for the relevant accounting year—that is, a due date of 30 November.
Financial year (FY) 2016-17 will be the first reporting year for filing a CbC report. The Central Board of Direct Taxes, being aware of potential hardships encountered by taxpayers in preparing their first CbC report, issued a circular on 25 October 2017 that extends the due date for filing the first CbC report to 31 March 2018.
Transfer Pricing: Whether a transaction is entered into at an Arm’s Length Price or not must depend upon the facts of each case relating to the transaction per-se. The fact that the transaction has not yielded results or has resulted in a loss is irrelevant (Sep 2, 2016)
(i) The contention of the lower authorities for not accepting the assessee’s case was that the assessee had not been able to substantiate that the payment for the services had actually increased its profits. The TPO held that the assessee should have been able to show the level of increase in profit post the said transactions.
(ii) The answer to the issue whether a transaction is at an arm’s length price or not is not dependent on whether the transaction results in an increase in the assessee’s profit. This would be contrary to the established manner in which business is conducted by people and by enterprises. Business decisions are at times good and profitable and at times bad and unprofitable. Business decisions may and, in fact, often do result in a loss. The question whether the decision was commercially sound or not is not relevant. The only question is whether the transaction was entered into bona fide or not or whether it was sham and only for the purpose of diverting the profits.
The Central Board of Direct Taxes (CBDT) issued new guidelines concerning the criteria for selecting cases for specialised transfer pricing scrutiny, clarifying the role of Assessing Officers and Transfer Pricing Officers, and providing guidance for maintenance of the tax authorities’ database of transfer pricing case referrals.
(15 March 2016)
Under Instruction no. 3/2016, referrals to Transfer Pricing Officers will be mandatory when the case is identified for scrutiny on the basis of transfer pricing risk parameters (computer-assisted or manual selection). Cases that are not identified under these criteria nevertheless can be referred to the Transfer Pricing Officers when:
In section 92D of the Income-tax Act, with effect from the 1st day of April, 2017,—
(i) in sub-section (1), the following shall be inserted, namely:—
‘Provided that the person, being a constituent entity of an international group, shall also keep and maintain such information and document in respect of an international group as may be prescribed.
Explanation.—For the purposes of this section,—
(A) “constituent entity” shall have the meaning assigned to it in clause (d) of sub-section (9) of section 286;
(B) “international group” shall have the meaning assigned to it in clause (g) of sub-section (9) of section 286.’;
(ii) after sub-section (3), the following sub-section shall be inserted, namely:—
“(4) Without prejudice to the provisions of sub-section (3), the person referred to in the proviso to sub-section (1) shall furnish the information and document referred to in the said proviso to the authority prescribed under sub-section (1) of section 286, in such manner, on or before the date as may be prescribed.”.
It is proposed to amend sub-section (3A) of section 92CA to provide that in following situations, if the time available to the TPO for making an order after excluding the time for which assessment proceedings were stayed or the time taken for receipt of information, as the case may be, is less than 60 days, then such remaining period shall be extended to 60 days.where assessment proceedings are stayed by any court orwhere a reference for exchange of information has been made by the competent authority,The amendment will take effect from 1st day of June, 2016.
Under Action 13 of BEPS Action Plans, the OECD adopted a three-tiered approach to Transfer Pricing (“TP”) documentation which inter-alia, includes a local file, a master file and a country-by-country (“CbC”) report.
Adopting the above approach, the Finance Bill 2016 has introduced the CbC reporting and master file requirement. The CbC reporting requirement is introduced with effect from Assessment Year 2017-18 (financial year 2016-17), requiring Indian headquartered Multi-national Enterprises (“MNEs”) and certain other Indian entities of global MNEs to file the CbC report with the Indian Authority (to be prescribed). As per the Memorandum to the Finance Bill, India will adhere to the OECD prescribed group revenue threshold of Euro 750 million (`5395 crores at current exchange rates) for the applicability of the CbC requirement, though the specific threshold in Indian currency would be prescribed later (based on exchange rate as on 31 March 2016).
The CbC report is required to filed on or before the due date for filing the return of income in India (typically on 30 November following the end of the Indian financial year in March). The Memorandum to the Finance Bill has also introduced the requirement to maintain master file data, though the detailed provisions are to be prescribed later. Stringent penalty provisions have also been prescribed for non-furnishing and/or furnishing inaccurate particulars.
In what could lead to an increase in domestic tax liabilities of many Indian conglomerates and multinationals, the government is set to introduce a framework for Base Erosion and Profit Shifting (BEPS), a global agreement to check tax avoidance by multinationals, in the upcoming Budget.
Industry sources expect the BEPS framework to come into being immediately after the Budget, from April 1.
So going ahead, any company or conglomerate that has an operation outside India would have to submit a detailed split of revenues, profit, operations (corresponding economic activity) and taxes paid in each country they operate.
BEPS is a guideline released by the Organisation for Economic Co-operation and Development ( OECD) that would allow country-by-country reporting — to check the various tactics multinationals play to avoid and reduce taxes they pay. While there are 15 standards under BEPS, India in the first round may not create a framework for all of those.