Gearing up for CbCR filing

June 16,2017
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Puneet Dudeja (Principal, Price Waterhouse & Co LLP)

Navneet Kothari (Director, Price Waterhouse & Co LLP)

The Organization for Economic Co-operation & Development (‘OECD’), as part of the Base Erosion and Profit Shifting (‘BEPS’) initiative, recommended a three tier documentation approach. This approach is intended to attain transparency and provide a framework for risk assessment which would enable the tax authorities to make a proper assessment of transfer pricing risks. To read the OECD recommended documentation approach, as part of Action Plan 13, please refer to Annexure 1.

G20 countries (including India) have formally endorsed the BEPS Action Plans. Keeping its commitment to implement the Action Plans to address BEPS, India adopted the recommendation of Action Plan 13 by introducing the requirement of Country by Country report [Section 286 of the Income-tax Act, 1961 (‘the Act’)] and the Master File (amendment to Section 92D of the Act) in the domestic law. To read the overview of the Indian provisions relating to 3 tier documentation please refer to Annexure 2.

While India has adopted the recommendation of Action Plan 13, it is imperative for the entities to give due consideration to certain aspects while ensuring compliance with the new documentation norm. We have analyzed some aspects in this article which would merit consideration by the entities.

Key considerations for Indian outbound Multi National Enterprises (‘MNEs’)

  • Assessment of the pricing model to ensure alignment with the BEPS principles

The OECD, as part of Action Plans 8 to 10, has recommended that the transfer pricing outcome should be aligned to the value creation. This principle is likely to be adopted and considered by many countries while making transfer pricing determinations. Hence, it is imperative for the Indian outbound Groups to do an assessment of their existing pricing model to ensure that it is aligned to the principles laid down in Action Plans 8 to 10.

The Indian outbound Groups would need to undertake the complete value chain analysis, identify the contribution made by the respective group entities to the value chain and thereby ascertain the remuneration to be retained by the respective group entity which is commensurate with the value created by them. In case there are any gaps identified, the Groups may need to make appropriate modifications to the pricing policy.

  • Identification of the Reporting entity

As stated above, the CbCR reporting obligation is on the ultimate parent entity of the Group. The ultimate parent entity could either do the reporting by itself or could nominate another Group entity for the same. Given this flexibility, it is imperative for the Indian MNE Group to ascertain the entity which would be doing the CbCR filing.

While there are no specific considerations for making a choice of the reporting entity, it seems to be more governed by the ease of complying with this for eg.

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