Country-by-Country (CbC) Report
With Central Board of Direct Taxes(CBDT) notifying rules for furnishing "Country-by-Country Report" (CbC) specifying information pertaining to all large multinational enterprises (MNEs), the Finance Ministry said that Joint Director of Income-tax (Risk Assessment-1) has been designated as the Income-tax Authority before whom particulars of the parent entity and alternate reporting entity would be notified.
• The lack of quality data on corporate taxation has been a major limitation to measuring the fiscal and economic effects of tax avoidance, making it difficult for authorities to carry out transfer pricing assessments on transactions between linked companies and even more difficult to carry out audits.
• The BEPS Action 13 report provides a template for multinational enterprises (MNEs) to report annually and for each tax jurisdiction in which they do business the information set out therein. This report is called the Country-by-Country (CbC) Report.
Under BEPS Action 13, all large MNEs are required to prepare a country-by-country (CbC) report with aggregate data on the global allocation of income, profit, taxes paid and economic activity among tax jurisdictions in which it operates.
A CbC report provides local tax authorities visibility to revenue, income, tax paid and accrued, employment, capital, retained earnings, tangible assets and activities of the concerned MNE.
As per corresponding provisions of Indian Income tax Laws, every MNE group which has a constituent entity resident in India is mandated to notify the Income-tax Department its parent entity and alternate reporting entity and the countries where such entities are resident.
Such parent entity or alternate reporting entity is required to furnish a report called “CbC Report” specifying certain information including:
o The aggregate information in respect of the amount of revenue, profit or loss before income-tax, amount of income-tax paid, amount of income-tax accrued, stated capital, accumulated earnings, number of employees and tangible assets not being cash or cash equivalents, with regard to each country or territory in which the group operates;
o The details of each constituent entity of the group including the country or territory in which such constituent entity is incorporated or organised or established and the country or territory where it is resident;
o The nature and details of the main business activity or activities of each constituent entity.
The BEPS Action 13 report also included a requirement that a review of the CbC reporting minimum standard be completed by the end of 2020.In February 2020, the OECD launched a public consultation process on matters where its members seek input from stakeholders in conducting this 2020 review.
India has recently clarified timelines for the filing of the CbCR for Indian affiliates of foreign-parented MNEs for which India does not have an agreement for exchange of the CbCR or when there is no requirement for filing the CbCR in the country in which the parent company is resident.
The Indian Revenue Service (IRS) Board has prescribed a 12-month period from end of the reporting accounting year in these cases.
As of January 2020, there are over 2400 bilateral exchange relationships activated with respect to jurisdictions committed to exchanging CbC reports across globe.
The Government has taken thoughtful step to get its hands-on comprehensive information about MNEs global and India operations. CbCR is step towards achieving the international commitment of India and to prevent base profit erosion. This helps in scrutiny of transfer pricing arrangements of MNEs in India.
Base erosion and profit shifting (BEPS)
It refers to tax planning strategies used by MNEs that exploit gaps and mismatches in tax rules to avoid paying tax. BEPS practices cost countries USD 100-240 billion in lost revenue annually.
Workingtogether within OECD/G20 Inclusive Framework on BEPS, over 135 countries and jurisdictions are collaborating on the implementation of measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.
PEPPER IT WITH
OECD, G-20, Transfer pricing
Multilateral Competent Authority Agreement on the exchange of CbC Reports(MCAA CbCR)
It is a multilateral framework agreement based on the Convention on Mutual Administrative Assistance in Tax Matters.
It provides a standardized and efficient mechanism to facilitate the automatic exchange of CbC Reports.
Under this, signatories to the MCAA will automatically exchange CbC Reports with one another on a bilateral basis if both parties are mutually agreeable.