Country-By-Country Reporting India Perspective

Some Frequently Asked Questions (FAQs)

About the Author:

CA.Gaurav Garg is the managing director of JGarg Economic
Advisors Pvt. Ltd. and has got more than 12 years of experience in
transfer pricing and international tax.
Gauravs contact details:
(E) gaurav@jgarg.com
(M) 919899994934

Q1

What is CbC Reporting and on which entities it applies?

Via Finance Act 2016, Government of India (GOI) has introduced Section 286 (S.286) Furnishing of report in respect of international group in the Income Tax
Act (the Act), wherein it is required that a taxpayer, being a parent entity of international group and also in some other situations, must file a report in the
prescribed format with regard to its international group with the Indian tax authority (ITA).
Requirement under S.286 of the Act is in line with Action 13 - Transfer Pricing Documentation and Country-by-Country Reporting of Base Erosion and Profit
Shifting Project (BEPS) adopted by Organisation for Economic Co-operation and Development (OECD) and G20 countries.
Requirement to file a report under S.286 of the Act is referred as Country-by-Country (CbC) Reporting in Action 13, also perusal of Memorandum explaining the
Finance Bill 2016 leaves no room for doubt that S.286 is nothing but an image provision of Action 13.
CbC report is a tool intended to allow tax administrations to perform high level transfer pricing risk assessments, or to evaluate other BEPS related risks. Under
CbC report, eligible taxpayer is required to file, in a prescribed format, aggregate tax jurisdiction-wide information relating to the global allocation of the income,
the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which the related multinational enterprise (MNE) group
operates. CbC report would also require a listing of all the Constituent Entities for which financial information is reported, including the tax jurisdiction of
incorporation, where different from the tax jurisdiction of residence, as well as the nature of the main business activities carried out by that constituent entity.

Country by-Country Reporting

FAQs India Perspective

CbC reporting is applicable on MNE groups with annual consolidated group revenue of 750 million or more in the preceding fiscal year. From India perspective,
wherein consolidated revenue for the period ending FY 2015-16 was near to Rs.5400 crore (need to wait for clarification from GOI for exact number), parent
entity of such international group must file CbC report.
As it is applicable from FY 2016-17, first compliance deadline for Indian parent companies would going to be 30th November 2017.

Q.2

BEPS Action 13 also talks about three tier transfer pricing documentation, what is three tier transfer pricing documentation?
OECD realised that Guidelines issued in 1995 were not sufficient to address transfer pricing documentation requirement by tax authorities. And thus through
three tier transfer pricing documentation, the objective is to give more relevant and robust information in the hands of tax authorities.
So, now in addition to transactional report (referred as local file) in Action 13, taxpayer is also required to maintain master file and CbC report. First time, OECD
has given template of transfer pricing documentation and prescribes documents and information that should be maintained and submitted to the tax authorities.
It is important to understand that though there is threshold for CbC reporting, however no threshold has been prescribed for Master File by OECD.
Brief overview of three tier documentation is given below:

Master File: The master file should provide an

o

overview of the MNE group business, including the nature of its global business operations,

its overall transfer pricing policies, and

its global allocation of income and economic activity in order to assist tax administrations in evaluating the presence of significant transfer pricing
risk.

In general, the master file is intended to provide a high-level overview in order to place the MNE groups transfer pricing practices in their global economic,
legal, financial and tax context.

Local File: the local file provides more detailed information relating to specific intercompany transactions.

Country-by-Country Report: The CbC Report requires aggregate tax jurisdiction-wide information relating to the global allocation of the income, the taxes
paid, and certain indicators of the location of economic activity among tax jurisdictions in which the MNE group operates.

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FAQs India Perspective

Q.3

Can the OECD guidance on CbC reporting be used to interpret the Indian CbC reporting legislation?
In general, being India is signatory to BEPS implementation package, OECD guidelines can be followed. However, where there is a conflict, the Indian CbC
reporting legislation i.e. S.286 of the Act and related rules takes precedence.

Q.4

Who will be required to file a CbC report in India?

As noted in Q1, CbC reporting is applicable on MNE groups with annual consolidated group revenue of 750 million or more in the preceding fiscal year. The
following constituent entities of such MNE groups will be required to file CbC report in India for FY 2016-17:

An Indian tax resident parent entity of an MNE Group [S.286(2) of the Act], or,

An Indian tax resident alternative reporting entity of an MNE Group [S.286(2) of the Act], or

An Indian tax resident constituent entity of an MNE Group:

If the jurisdiction in which the parent entity of the MNE Group is a resident, does not have an agreement with India for exchange of the CbC report
[S.286(4)(a) of the Act]. However, S.286(5) of the Act provides exclusion if MNE Group appoints alternate reporting entity to file CbC report with relevant
jurisdictional tax authority and India has agreement with that jurisdiction.

If there is an agreement between jurisdiction in which the parent entity of the MNE Group is a resident, however there has been systematic failure.
[S.286(4)(b) of the Act].

Q.5

What is the meaning of group and MNE or International group?

S.286(9)
(e) group includes a parent entity and all the entities in respect of which, for the reason of ownership or control, a consolidated financial statement for
financial reporting purposes,
(i) is required to be prepared under any law for the time being in force or the accounting standards of the country or territory of which the parent
entity is resident; or
(ii) would have been required to be prepared had the equity shares of any of the enterprises were listed on a stock exchange in the country or
territory of which the parent entity is resident;

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FAQs India Perspective

(g) international group means any group that includes,

(i) two or more enterprises which are resident of different countries or territories; or
(ii) an enterprise, being a resident of one country or territory, which carries on any business through a permanent establishment in other countries or
territories;

Q.6

Which entity is the parent entity for the purpose of compliance under S.286 of the Act?
As per S.286(9)(h), the term Parent Entity means a Constituent Entity of an MNE Group that meets the following criteria:
(i) it owns directly or indirectly a sufficient interest in one or more other Constituent Entities of such MNE Group such that it is required to prepare Consolidated
Financial Statements under any law in force or accounting standards generally applied in its jurisdiction of tax residence, or would be so required if its equity
shares were listed on a stock exchange, and
(ii) there is no other constituent entity of such group which, due to ownership of any interest, directly or indirectly, in the first mentioned constituent entity, is
required to prepare a consolidated financial statement, under the circumstances referred to in clause (i) or clause (ii), that includes the separate financial
statement of the first mentioned constituent entity;
Thus what needs to be seen effectively is the ultimate parent entity.

Q.7

Kindly explain provisions related to an alternative reporting entity?

Both Action 13 and S.286 allows MNE group to appoint any constituent entity of the group as alternative reporting entity.
As per S.286(9)
(c) alternate reporting entity means any constituent entity of the international group that has been designated by such group, in the place of
the parent entity, to furnish the report of the nature referred to in sub-section (2) in the country or territory in which the said constituent entity
is resident on behalf of such group;

S.286 of the Act does not envisage a situation under which an entity can be appointed as an alternate reporting entity. However, perusal of Model legislation
related to Country by Country Reporting which is part of Action 13, we understand that the entity which is refereed as alternate reporting entity in S.286 is
indeed a surrogate parent entity as per Action 13.

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Para 7 of Article 1 of the Model legislation related to Country by Country Reporting, the term Surrogate Parent Entity means constituent entity of the MNE
Group that has been appointed by such MNE Group, as a sole substitute for the ultimate parent entity, to file the Country-by-Country report in that constituent
entitys jurisdiction of tax residence, on behalf of such MNE Group
Further, conditions under-which ultimate parent entity can appoint surrogate parent entity are also enumerated, same are highlighted below:
a) the ultimate parent entity of the MNE Group is not obligated to file a Country-by-Country report in its jurisdiction of tax residence; or,
b) the jurisdiction in which the ultimate parent entity is resident for tax purposes does not have a qualifying competent authority agreement in effect with India
that provides for the exchange of CbC Report; or,
c) there has been a systemic failure of the jurisdiction of tax residence of the ultimate parent entity and the same has been notified to the local constituent entity
by the ITA.

Q.8

constituent entity?
As per S,286(9) (d) constituent entity means,
(i) any separate entity of an international group that is included in the consolidated financial statement of the said group for financial reporting purposes, or may
be so included for the said purpose, if the equity share of any entity of the international group were to be listed on a stock exchange;
(ii) any such entity that is excluded from the consolidated financial statement of the international group solely on the basis of size or materiality; or
(iii) any permanent establishment of any separate business entity of the international group included in clause (i) or clause (ii), if such business unit prepares a
separate financial statement for such permanent establishment for financial reporting, regulatory, tax reporting or internal management control purposes;

Q.9

Types of constituent entities and their responsibilities?

S.No

Type of constituent entity

Responsibility

Ultimate parent entity tax resident in India

Filing CbC report with Indian income tax authority on or before

the due date.

Alternate (or Surrogate) reporting entity tax resident in India

Intimation in the prescribed format to be filed with Indian

Income tax authority that it is alternate reporting entity.

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FAQs India Perspective

S.No

Type of constituent entity

Responsibility
Also, CbC report on or before due date.

Constituent entity tax resident in India, excluding alternate reporting entity, of an

international group, if the ultimate parent entity is resident of a country or territory:-

Filing CbC report with Indian income tax authority

(a) with which India does not have an agreement providing for exchange of the report
of the
nature referred to in sub-section (2); or
(b) there has been a systemic failure of the country or territory and the said failure
has been
intimated by the prescribed authority to such constituent entity:
4

Constituent entity other than above

Details of the parent entity or the alternate reporting entity, if

any, of the international
group, and the country or territory of which the said entities
are resident in the prescribed format to be filed with Indian
Income tax authority

Q.10.

As per the template given in Action 13, what information should a CbC Report contain?
A CbC report for an MNE Group must contain the following information in respect each jurisdiction in which the MNE Group operates:
(a) on an aggregate basis,

amount of unrelated party revenue, related party revenue and total revenue;

amount of profit or loss before income tax;

amount of income tax paid;

amount of income tax accrued;

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FAQs India Perspective

amount of stated capital,

amount of accumulated earnings,

number of employees, and

value of tangible assets other than cash or cash equivalents; and

(b) identification of each constituent entity carrying on a business or tax resident in each jurisdiction and, where different from such jurisdiction of tax residence,
the jurisdiction under the laws of which such constituent entity is organised, and the
For template, please refer Annexure 1A & 1B
Brief note on few of items required to be reported is given below:
S.No
1

Item

Key points

Tax Jurisdiction

The Reporting MNE should list all of the tax jurisdictions in which constituent entities of the MNE group are resident for tax
purposes.
A tax jurisdiction is defined as a State as well as a non-State jurisdiction which has fiscal autonomy. A separate line should be
included for all constituent entities in the MNE group deemed by the Reporting MNE not to be resident in any tax jurisdiction for
tax purposes.

Revenue

Revenues should include revenues from sales of inventory and properties, services, royalties, interest, premiums and any other
amounts.
Revenues should exclude payments received from other constituent entities that are treated as dividends in the payers tax
jurisdiction.

Profit
before
Tax

(Loss)
Income

Income Tax Paid

(on Cash Basis)

The profit (loss) before income tax should include all extraordinary income and expense items.

Taxes paid should include cash taxes paid by the constituent entity to the residence tax jurisdiction and to all other tax jurisdictions.
Taxes paid should include withholding taxes paid by other entities (associated enterprises and independent enterprises) with

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FAQs India Perspective

S.No

Item

Key points
respect to payments to the Constituent Entity.
Thus, if company A resident in tax jurisdiction A earns interest in tax jurisdiction B, the tax withheld in tax jurisdiction B should be
reported by company A.

Number
Employees

of

The Reporting MNE should report the total number of employees on a full-time equivalent (FTE) basis of all the constituent entities
resident for tax purposes in the relevant tax jurisdiction. The number of employees may be reported as of the year-end, on the
basis of average employment levels for the year, or on any other basis consistently applied across tax jurisdictions and from year to
year. For this purpose, independent contractors participating in the ordinary operating activities of the constituent entity may be
reported as employees. Reasonable rounding or approximation of the number of employees is permissible, providing that such
rounding or approximation does not materially distort the relative distribution of employees across the various tax jurisdictions.
Consistent approaches should be applied from year to year and across entities.

Q.11

What sources of data should be used to complete the CbC Report?

The reporting entity/ domestic constituent entity may choose to use data from its

consolidation reporting packages,

from separate entity statutory financial statements,

regulatory financial statements, or

internal management accounts.

It is important to be consistent in approach.

As per BEPS Action 13 Final Report, it is not necessary to reconcile the revenue, profit and tax reported in the CbC Report to the consolidated financial statements.

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FAQs India Perspective

Q.12

When one need to identify ultimate parent entity?

Unlike provisions of S.92A(2), which refers relationship any time during the year, compliance under S.286 of the Act is linked with consolidation of financial
statement of constituent entity with ultimate parent entity.
Such consolidation generally occurs towards the end of the year while preparing financial statement for the year, thus ultimate parent entity needs to be
identified as per consolidation carried out at the end of the year.

Q.13

What are the penalties under the Act related to non compliance of CbCR and Master File?
S.No

Section

Non-compliance

Penalty

271AA(2)

Penalty for failure to furnish Master File

Rs.500,000

271GB

Penalty for failure to furnish CbC report or further information called

for in support of disclosures made in CbC report

if default is not more than a month, penalty of Rs. 5000/- per

day applies
if default is beyond one month, penalty of Rs 15000/- per day
for the period exceeding one month applies;
for any default that continues even after service of any of the
above penalty order @ Rs 50,000/- per day;

Q.14

271 GB

Penalty for providing inaccurate information in CbC report

Rs.500,000

How will ITA obtain CbC reports for Indian subsidiaries / permanent establishment of an MNE Group where the reporting entity is not tax resident in India?
Where the reporting entity is not a tax resident in India, ITA will receive the CbC report from the competent authority in the jurisdiction in which the reporting
entity is tax resident under automatic exchange of information provisions.

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FAQs India Perspective

Q.15

Will ITA going to share CbC reports filed in India with tax authorities of other jurisdiction or territory?
ITA will share CbC report, if asked for, under automatic exchange information agreement with qualifying competent authority.

Q.16

What is the purpose of collecting information via CbC Report?

As per Para 25 of OECD (2015), Transfer Pricing Documentation and Country by Country Reporting, Action 13 2015, Final Report, three permitted uses for
information contained in CbC Reports, namely:

to assess high level transfer pricing risk;

to assess other BEPS-related risks; and

for economics and statistical analysis.

Further, it also clarifies that the information in the CbC report should not be used as a substitute for a detailed transfer pricing analysis of individual transactions
and prices based on a full functional analysis and a full comparability analysis. The information in the Country-by-Country report on its own does not constitute
conclusive evidence that transfer prices are or are not appropriate. It should not be used by tax administrations to propose transfer pricing adjustments based on
a global formulary apportionment of income.

Q.17

What are the provisions to protect confidentiality of the data shared via CbCR/ Master File?
Under Action 13, OECD has very clearly directed various Revenue Authorities to protect the confidentiality of the data shared via CbCR and Master File. Specific
provision with regard to Confidentiality and Data Safeguard also forms part of Tax Information Exchange Agreements, Multilateral Competent Authority
Agreement and other similar agreements.
It is to be appreciated that in April 2015, CBDT has formed Information Security Committee which is headed by Chief Information Security Officer (CISO). As per
Annexure B of CISO Instruction No.1 [F.No.500/62/2015-FTTR-III] dated 10th July 2015, information, unauthorized disclosure of which could be expected to cause
damage to the security of the organization or could be prejudicial to the interest of the organization, or could affect the organization in its functioning would be
classified as confidential, further as per example treaty exchanged information should be classified as confidential.
In CISO Instruction No.1, CBDT recognize that the tax administration is obliged to keep the information submitted by the taxpayers, including their sensitive
financial and personal information, confidential and is required to take steps to ensure that they are not disclosed inappropriately, either intentionally or by
accident.

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However, as the information shared will travel across the globe and will go in the hands of different government, it is quite tough to rule out possibility of
information getting leaked at some point. Further, incidents like Panama Papers and growing scrutiny by social activists, news reporter etc second the concern of
business community and tax consultants.

Disclaimer
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting
advice. You should consult your tax, legal and accounting advisors before engaging in the subject topic.

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FAQs India Perspective

Annexure 1A: Model template for the Country-by-Country Report: Overview of allocation on income, taxes and business activities by tax jurisdiction
Name of the MNE Group:
Fiscal year concerned:
Currency Used:

Tax
Jurisdiction

Revenues
Unrelated Party

Related Party

Total

Profit(Loss)
before Income
Tax

Income Tax
Pid (on cash
basis)

Income
Tax
AccruedCurrent Year

Stated
Capital

Accumulated
Earnings

Number of
Employees

Tangible Assets other

than cash and cash
equivalents

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Annexure 1B: Model template for the Country-by-Country Report: List of all the Constituent Entities of the MNE group included in each aggregation as per tax
jurisdiction

Name of the MNE Group:

Fiscal year concerned:
Main Business Activity(ies)

Tax
Jurisdiction

Constituent
Entities Resident
in the Tax
Jurisdiction

Tax Jurisdiction of
Organization or
incorporation if
different from Tax
Jurisdiction of
Residence

Research
and
development

Holding or
Managing
Intellectual
Property

Purchasing
or
Procurement

Manufacturing
or Production

Sales,
Marketing or
Distribution

Administrative,
Management or
Support Services

Provision
of
services
to
Unrelated
parties

Internal
group
Finance

Regulated
Financial
Services

Insurance

Holding
shares or
other equity
instruments

Dormant

1
2
3
1
2
3

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Other