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BEPS

India and U.S. Finalize Agreement to Exchange Country-by-Country Reports

Jessica Silbering-Meyer  

Jessica Silbering-Meyer  

On March 15, 2019, India’s Ministry of Finance (MOF) issued a press release on finalizing a competent authority arrangement (CAA) with the U.S. to exchange country-by-country (CbC) reports, which both countries will sign by March 31st.

According to the press release, both countries intend to exchange CbC reports filed by the ultimate parent entities of MNE Groups in the respective jurisdictions, pertaining to financial years commencing on or after January 1, 2016. Indian constituent entities of MNE groups headquartered in the U.S., who have already filed CbC reports in the U.S., would not be required to locally file CbC reports in India.

Editor’s Note: On December 26, 2018, the MOF issued Circular No. 9/2018 regarding deadlines for secondary filing of 2017 CbC reports. The CBDT decided to extend the period for constituent entities to submit the CbC report by March 31, 2019, with respect to reporting accounting years ending up to February 28, 2018.

Background

Section 286(4) of India’s Income Tax Act, 1961 mandates that a constituent entity of the MNE group (other than the parent entity), resident in India, must submit the CbC report if the parent entity is resident of a country or territory that does not have an agreement with India providing for the exchange of CbC reports or if this jurisdiction is unable to exchange the reports.

On May 12, 2016, India signed the OECD Multilateral Competent Authority Agreement for the automatic exchange of CbC reports (“CbC MCAA”). Under the CbC MCAA, signatories may exchange CbC reports with other signatories if they have CbC reporting requirements in place and are a party to the OECD Convention on Mutual Administrative Assistance in Tax Matters.

The CbC MCAA provides that CbC report information will be used to assess high-level transfer pricing and other BEPS-related risks, but not as a substitute for a detailed transfer pricing analysis of individual transactions and prices based on a full functional and comparability analysis. The information may be used as a basis for further inquiring into the multinational’s transfer pricing arrangements in the course of a tax audit. If an adjustment resulting from further inquiries based on the CbC report leads to undesirable economic outcomes, the tax authorities of the jurisdictions of residence of the affected entities must consult each other in attempting to resolve the case.

On June 29, 2016, the U.S. Internal Revenue Service (IRS) and Treasury released the CbC reporting final Regulations, which apply to tax years of ultimate parent entities of U.S. MNE groups that begin on or after June 30, 2016, when the MNEs have revenue for the preceding annual accounting period of $850 million or more.

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