TRANSFER PRICING - Country By Country (“CbC") reporting - budget 2016

[CS Swati Dodhi]

TRANSFER PRICING

Introduction by country by country reporting requirements

Revised standards for transfer pricing documentation and a template for country-by-country reporting of income, earnings, taxes paid and certain measure of economic activity was provided in The OECD report on Action 13 of Base Erosion and Profit Shifting (“BEPS”) Action plan. India has been one of the active members of BEPS initiative and part of international consensus. It is recommended in the BEPS report that the countries should adopt a standardised approach to transfer pricing documentation and Country By Country (“CbC”)

As per India's interst in adoption of global standards of reporting as well as exchange of information and international consensus to adopt BEPS recommendations, the budget 2016 laid down points for CbC Reporting, as part of the existing transfer pricing documentation requirements.

Amendments for introduction of CbC Reporting are proposed to be made in the Act and the Rules thereunder. The elements relating to CbC reporting requirement and matters related to it proposed to be included through amendment of the Act, by virtue of introduction of Section 286 of the Act, are as below -

Entities to which CbC Reporting would apply

•  The reporting provision shall apply in respect of an international group having consolidated revenue above a threshold to be prescribed, which has been presently proposed at Euros 750 million of consolidated group revenues   [approx. ₹ 53.95 billion];
•  The parent entity for a group shall be an entity which is required to prepare consolidated financial statement under  the applicable laws or would have been required to prepare such consolidated financial statements, had equity share of  any entity of the group been listed on a recognized stock  exchange in India;
•  The parent entity of an international group, being resident  in India, shall be required to furnish the report in   respect of the group to the prescribed authority on or before the due date of furnishing of return of income for the Assessment Year relevant to the Financial Year (previous year) for which the report is being furnished (which at   present is November 30 for the tax year ended on March 31);
•  In case of an international group whose parent entity is not  situated in India, the “constituent entity” of the said     international group, shall provide information regarding the  country or territory of residence of the parent of the     international group to which it belongs.

Contents of the CbC Report

• The CbC report shall be in the format prescribed by OECD  under BEPS Action Plan 13. It shall contain details of  aggregate information in respect of revenue, profit & loss  before Income-tax, amount of Income-tax paid and  accrued,  details of capital, accumulated earnings, number of   employees, tangible assets other than cash or cash equivalent in respect of each country or territory along  with details of each constituent's residential status, nature and detail of main business activity and any other  information as may be prescribed.
• The prescribed authority has been empowered to call for such document and information from the entity furnishing the report for the purpose of verifying the accuracy of the CbC report. A time period of 30 days has been laid down for fulfillment of such request.

Filing of the CbC Report by specified entities

• An entity in India belonging to an international group shall be required to furnish CbC report to the prescribed authority, if the parent entity of the group is resident:
  • In a country with which India does not have an arrangement for exchange of the CbC report;
  • Such country is not exchanging information with India even though there is an agreement; and
  • This fact has been intimated to the entity by the prescribed authority. 
• Sufficient safeguards have been provided to avoid duplication and multiplicity with respect of furnishing the CbC Reports with the prescribed authority.

Penal provisions in case of failure to furnish the CbC report.

Default For non-furnishing of the report by an entity which is obligated to furnish it - Default of upto one month ₹ 5,000 per day whereas Default is beyond one month ₹ 15000 per day for the period exceeding one month

Default for For non-furnishing of the report by an entity which has been served a penalty order, as per (1) above - Default for days beyond serving of penalty order Rs, 50,000 per day

Default for For non-submission of requested information before prescribed authority - Till the days the default continues ₹ 5,000 per day and If default continues even after service of penalty order ₹ 50,000 per day

Default of any inaccurate information in the CbC report - in case of - Knowingly furnishes inaccurate information, aware of any inaccuracy post furnishing the report and fails to inform the prescribed authority and furnish correct report within a period of fifteen days of such discovery; or if the entity furnishes inaccurate information or document in response to notice of the prescribed authority - Panlty of ₹ 500,000

• The entity can offer reasonable cause defence for non-levy of penalties mentioned above.
• The amendment will be effective from April 1, 2016 and shall apply for the previous year 2016-17 and subsequent assessment years. Therefore, CbC reporting for an international group having Indian parent, for the previous year 2016-17, shall apply only if the consolidated revenue of the international group in previous year 2015-16 exceeds ₹ 53.95 billion

Proposal to amend sub-section (3A) of section 92CA where a reference for exchange of information is made by the competent authority, the time available to the TPO for completing the assessment, after excluding such time for which assessment proceedings were stayed or the time taken for receipt of such information, is less than sixty days, then such remaining period shall be extended to sixty days.
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