India in pact to ease U.S. firms’ compliance

  1. India and the US has signed an Inter-Governmental Agreement for exchange of Country-by-Country (CbC) reports of multinational companies regarding income allocation and taxes paid to help check cross-border tax evasion.This is a key step in making India compliant with the Base Erosion and Profit Shifting (BEPS) Action 13 report of which India is an active participant.
  2. This agreement is significant as (a)This agreement along with the Bilateral Competent Authority Arrangement would enable both the countries to exchange CbC reports filed by the ultimate parent entities of international groups in the respective jurisdictions pertaining to the financial year commencing on or after January 1,2016 and (b)It will also prevent the need for Indian subsidiary companies of the American multinational enterprises to do local filing of the CbC Reports,thereby reducing the compliance burden.
  3. The BEPS Action 13 report (Transfer Pricing Documentation and Country-by-Country Reporting) provides a template for multinational enterprises (MNEs) to report annually and for each tax jurisdiction in which they do business the information set out therein.This report is called the Country-by-Country (CbC) Report.
  4. A CbC report aggregates country-by-country information relating to the global allocation of income,taxes paid and certain other indicators of an MNC.It also contains a list of all the group companies operating in a particular jurisdiction and the nature of the main business activity of each such constituent entity.
  5. India had already signed the Multilateral Competent Authority Agreement (MCAA) for exchange of CbC reports which has enabled exchange with 62 jurisdictions.The Multilateral Competent Authority Agreement (MCAA) is a multilateral framework agreement that provides a standardised and efficient mechanism to facilitate the automatic exchange of information in accordance with the Standard for Automatic Exchange of Financial Information in Tax Matters.
  6. Base erosion and profit shifting refers to the activities of multinational corporations to shift their profits from high tax jurisdictions to lower tax jurisdiction,thereby eroding the tax base of the high tax jurisdictions and depriving them of tax revenue.In order to combat this,many countries entered into agreements to share tax information with each other to enhance transparency and make such profit shifting that much harder.