India has included a country-by-country (CbC) reporting requirement in section 286 of the Indian Income-tax Act, 1961, with effect from the financial year 2016-2017. The requirements are principally in line with BEPS Action 13. The first round of CbC reports, if applicable, must be submitted to the Indian tax authorities by 30 November 2017.
In April 2017, the OECD has also released additional guidance for tax administrations to use in implementing CbC reporting. The guidance addresses following issues:
Entities to be reported:
The requirement to file a CbC report applies only in respect of an international group having a consolidated revenue in the preceding year above a threshold limit EUR 750 million. The new documentation regime will apply for Financial Year (FY) 2016-17 (i.e., April 1, 2016 to March 31, 2017), and the first filing will be due by November 30, 2017.
CbCR will include the following information for each entity in the group:
Details of revenue, profit before tax, taxes paid, taxes accrued, stated capital, accumulated losses, tangible assets except for cash or cash equivalents, with regard to each country or territory in which group operates. In addition, details about each company based on the country of establishment and country of residence must be given together with the main business activities of these companies.
If the parent entity of an international group is resident in India, it is required to furnish the CbC report by 30 November 2017 for the Financial Year 2016-17. An Indian entity of an international group having an overseas parent is also required to provide details of the overseas parent to the Indian tax authorities.
The local file is to be filed locally and it is recommended that it be finalised by the filing date for the local tax return. What needs to be seen is whether local countries impose additional requirements for a local file that will require additional costs to prepare locally tailored documentation reports.
The requirement of maintaining a Master File will also take effect from Financial Year 2016-17 onwards. The master file can be prepared either on an overall company basis or a products group basis. However, the OECD provides that if the master file is prepared on a product group basis, information on all product groups must be submitted to all tax authorities, even if the local subsidiary is part of only one product group.
Penalties for non-compliance:
- Failure to furnish a Master File attract a penalty INR 500,000
- Failure to furnish the CbC report by a reporting entity, a day wise graded penalty structure would apply (INR 5,000 to 50,000 per day).
- If the reporting entity has provided any inaccurate information in relation to CbC report, then a lump sum amount of penalty INR 500,000 may be imposed.
However, the tax authority can eliminate or reduce a penalty for a reasonable cause.