India adopts reporting rules to crack aggressive corporate tax planning

India adopts reporting rules to crack aggressive corporate tax planning

The final country by country reporting rules notified by the CBDT is part of a global reporting regime that more than 100 countries have agreed to implementIndia on Wednesday notified final rules for multinational group companies (MNCs) in India to report specifics of their global parents’ operations as part of a global initiative to end instances of aggressive corporate tax planning.

Details filed by the multinational company’s local arm in India, together with the finer details of the parent’s operations in every market which Indian authorities can source from the group’s home country under tax treaties, will help the government know how businesses manage flow of funds across borders to keep tax outgo low.

The final country by country reporting rules notified by the Central Board of Direct Taxes (CBDT) is part of a global reporting regime that more than 100 countries have agreed to implement.The framework was prepared by the Organisation for Economic Co-operation and Development (OECD) with active participation by the Indian tax authorities.Countries that have signed the multilateral accord on the reporting framework are implementing it one by one.

According to the Income Tax (Twenty-fourth Amendment) Rules, 2017, parents of multinational group companies resident in India with a consolidated group revenue of Rs5,500 crore or more have to file a country-by-country report of operations to the tax department.This will allow the taxman to see if the group is artificially shifting income from India to a low tax country by structuring operations in a certain unnatural way or by manipulating invoices to under-report income or exaggerate expenses in transactions with other group companies.

“Since it is the first reporting year for furnishing the country by country report, the due date for reportable accounting year 2016-17 has already been extended to 31 March 2018,” CBDT said in a statement.The rules also provide for Indian units of MNCs located elsewhere to submit a bird’s eye view of the parents’ global operations in what is called a master file.

For this, the tax department has set a threshold of consolidated group revenue more than Rs 500 crore.If the parent is resident of a country with which India has no tax treaty option to source information about its detailed global operations, then the local unit has to give the same country by country report.

“These documentation requirements will give tax authorities the necessary data and insights to target practices that it feels will erode its tax base. The country by country reporting norms are onerous, but it is being implemented globally,” said Amit Maheshwari, partner, Ashok Maheshwary and Associates Llp.

The Mint, New Delhi, 2nd November 2017