Companies with businesses in India and abroad, including home-grown MNCs, may have to comply with the requirements under the base erosion and profit shifting (BEPS) norms while submitting their regulatory tax filings from April 1. Though the Organisation for Economic Co-operation and Development (OECD) recommendations on the BEPS action plan consist of 15 steps, finance minister Arun Jaitley is likely to start the norms with ‘reporting requirements’ starting the next financial year.
Akhilesh Ranjan, joint secretary (foreign tax and tax research) at the department of revenue of the finance ministry, told FE on Thursday that these Indian MNCs will have to file their reports in India under OECD action plans. Some of these plans are expected to be unveiled in the Union Budget on February 29. BEPS, endorsed by the G20 nations, includes 15 key areas for identifying and curbing aggressive tax planning and practices and modernising the international tax system.
The new norms would impact the tax planning of companies across sectors including ONGC Videsh, Tata Steel,Infosys, Tata Global Beverages, Motherson Sumi Systems, HCL Technologies, Hindalco Industries, Suzlon Energy, Tata Motors, Dr Reddy’s Laboratories, Punj Lloyd, Jubilant Life Sciences, TCS, Tata Chemicals, Bharti Airtel, Mahindra Group, Ranbaxy Laboratories, Mindtree and Bharat Forge, among others. Foreign MNCs present in India — those with permanent establishment status and others — will also be impacted.
“It will take some time to understand the impact (of BEPS). We need to examine if it is the right way to handle BEPS… This will help to make an assessment of the risk,” said Ranjan, who led India’s initiative in the BEPS project.
Jaitley is expected to roll out the guidance on the implementation of transfer pricing documentation and country-by-country reporting. Simply put, the companies would need to submit a master file containing standardised information relevant for all the multinational enterprise (MNE) group members; a local file referring specifically to material transactions of the local taxpayer; and a country-by-country report containing certain information relating to the global allocation of the MNE group’s income and taxes paid together with certain indicators of the location of economic activity within the MNE group.
“BEPS has to be understood in a detailed manner. Government is likely to start with reporting requirements around transfer pricing in the form of master file and country by country reporting in the forthcoming Union Budget. No one has a definitive answer to when all tax treaties would be changed globally,” Rahul Mitra, leader of BEPS and tax dispute resolution, KPMG in India.
In October 2015, the OECD issued a final package of reports with regards to action plan to address BEPS, as well as a plan for follow-up work and a timeline for implementation.
“There is a heightened level of awareness among Indian companies on the impact of BEPS measures on their business operations and the likelihood of increased compliance. The BEPS project is extremely relevant for India, especially the action plans dealing with treaty abuse, permanent establishment, intangibles, digital economy and transfer pricing country-by-country reporting,” said Anis Chakravarty, partner, Deloitte India.
Several Indian companies feel that BEPS initiatives should be rolled out in a way that it is applicable prospectively and not retrospectively. Moreover, it should not adversely impact Indian headquartered multinationals adversely and allows them a level playing field while competing with foreign multinationals.