As an active participant in the OECD’s base erosion and profit shifting (BEPS) project, India has implemented nearly all the BEPS recommendations and has taken several steps to amend the country’s domestic tax laws appropriately. The Indian Finance Act, 2016 implemented BEPS Action Item 13 by introducing a three-tiered transfer pricing documentation structure and made it effective from the 2016-17 financial year.
This article examines the due dates for filing country-by-country (CbC) report, with which both the taxpayers and the Government are struggling.
CbC reporting – applicability, obligation, and deadlines
The applicable threshold to furnish CbC report is INR55bn of the MNE Group’s consolidated revenues, in line with OECD’s threshold of EUR750m. The rules are largely consistent with the guidance already provided by the OECD under BEPS Action Item 13.
In case the Indian parent company or the alternate reporting entity of a MNE Group is resident in India (wherein the MNE Group’s consolidated turnover exceeds the prescribed threshold), the submission deadline for CbC report as provided in section 286 of the Income Tax Act was the due date for filing of tax returns in India (that is, November 30, 2017).
Budget 2018 proposed to amend this and extended the due date of filing CbC report in above cases to 12 months from the end of the reporting accounting year. Thus, for the 2017-18 financial year onwards, in most cases, the due date would be March 31, 2018. It should be noted that the due date for the 2016-17 financial year was already extended to March 31, 2018 earlier.
Where there is no exchange of info agreement
Apart from above, if an Indian company is a constituent entity of a MNE Group and the parent country filing the CbC report does not have an arrangement for automatic exchange of information with India, then the Indian entity will have to identify whether the parent company has designated an alternate reporting entity to file the CbC report, which belongs to a country with which India has an agreement for automatic exchange of information. In case the same does not exist, the Indian constituent entity would have to prepare and file the CbC report in India.
Taxpayers were facing a lot of confusion and uncertainties with respect to the above provision. While India and many countries have signed the Multilateral Competent Authority Agreement on the Exchange (MCAA) of CbCR, some countries are yet to sign the same. Similarly, the US preferred negotiating and signing an agreement with individual countries, rather than MCAA. As a result, the exchange of information agreement for CbC report between India and the US has not been signed and notified yet. This would have implied that all US-headquartered MNEs operating in India would have to file CbC report in India by March 31, 2018. This would have put a lot of taxpayers through unnecessary hardships and compliance burden.
To ease this burden, the Government, while passing the Finance Bill in the Lower House of India’s Parliament, amended the due date of filing CbC report in cases where there is no automatic exchange of information agreement to a date to be prescribed by the government. Thus, by virtue of this amendment, the Government has indefinitely extended due date to be prescribed in due course. The Central Board of Direct Taxes has also issued a clarification vide a press release dated March 23, 2018, in this regard.
Relaxing the time limit for filing the CbC report for some entities is definitely a welcome move for taxpayers, considering the practical issues that were involved.