In a measure that is will bring a sense of stability for foreign investors, finance minister Arun Jaitley has indicated that the government would conform with the recommendations of the Organisation of Economic Cooperation of Development (OECD) on base erosion and profit shifting (BEPS) on tax planning strategies.
“In order to meet with our commitment to BEPS initiative of OECD and G-20, the Finance Bill, 2016 includes provision for requirement of country-by-country reporting for companies with a consolidated revenue of more than 750 million euros,” said Jaitley in his budget speech.
This would ensure companies cannot strategise to exploit loopholes and make their profits ‘disappear’ at taxation stage by routing their finances through lower tax jurisdictions. The new regime will apply for financial year 2016-17 to Indian parent resident companies having consolidated turnover in excess of Rs 5,395 crore for FY15-16.
According to Sanjay Tolia, partner, Price Waterhouse & Co, the Finance Bill 2016 brought in new documentation regime aligned with the OECD BEPS Action 13 on Transfer Pricing Documentation and Country-by-Country (CbC) Reporting.
“The Indian Revenue will be able to access CbC documentation of companies having parents’ resident outside India through the mutual exchange of information agreements. Further, heavy penalty provisions for non-compliance have been proposed. Going forward, taxpayers will have to balance the need for increased compliance and transparency. This will require increased collaboration across geographies where they operate,” said Tolia.
India’s adoption of BEPS standards will likely affect large companies that have strong multinational presence. The norms were announced by OECD countries in October last to cut tax evasions and plug loopholes in rules.
BEPS norms that OECD has announced have fixed a minimum revenue threshold of 750 million euros (about Rs 5,500 crore). Companies that have global revenues exceeding this level will have to migrated to the new accounting and disclosure norms.
These norms will have to be followed by Indian companies from April 1, 2016-17.
Indian multinational firms and subsidiaries of foreign companies will also have to meet the reporting requirements. Country-by-country reporting is part of the minimum standards that governments are expected to adopt by 2017 as part of BEPS.