In response to inquiries from its tax examiners, on November 22, 2018, India’s Central Board of Direct Tax (CBDT) issued Instruction No. 6/2018 to aid examiners in using template information received from participating countries on advance pricing agreements (APAs), and other types of tax rulings (ETR) that involve Indian taxpayers.
India joined the OECD Inclusive Framework for the global implementation of the BEPS project. As a member, India has committed to implementing the four BEPS project minimum standards, including information on tax rulings under Action 5.
Background
With regards to transparency, a framework covering all rulings that could give rise to BEPS concerns absent compulsory spontaneous exchange has been agreed to under the Action 5 final report, and includes six categories of rulings:
- Rulings related to preferential regimes.
- Cross-border unilateral APAs or other unilateral transfer pricing rulings.
- Rulings giving a downward adjustment to profits.
- Permanent establishment (PE) rulings.
- Conduit rulings.
- Any other type of ruling where the OECD Forum on Harmful Tax Practices (FHTP) agrees in the future that the absence of exchange would give rise to BEPS concerns.
The Action 5 final report contains a two-step process for information on tax rulings. Under the first step, a tax authority will provide a summary and basic information about the ruling using the suggested template in the report (Annex C). Under the second step, the receiving tax authority should review the completed template and decide whether to request additional information.
The obligation to exchange applies to rulings issued on or after January 1, 2010, and still in effect from January 1, 2014. The Action 5 final report recognizes that, for past rulings, tax authorities may not be able to obtain all of the required information and also phases the timing for exchange of past rulings. Rulings issued from April 1, 2016 will be subject to the new framework in full, and should be exchanged no later than three months after they become available to the tax authority of the country that issued the ruling.
On September 20, 2017, the OECD issued a press release on new and updated IT tools and guidance to support the technical implementation of the exchange of tax information under the Common Reporting Standard (CRS), country-by-country (CbC) reporting, and tax rulings. The XML Schema and User Guide (version 1.0.1) includes a common set of data that must be provided under both the OECD and the EU frameworks, with additional items required to be completed where an exchange takes place under the EU framework.
The OECD has also developed additional XML schemas and user guides for tax administrations, with respect to tax rulings, which provide structured feedback to the sender on frequent errors. The status message XML schema allows tax administrations that have received information through the XML Schema to report back to the sending tax administration regarding whether the file received contained file or record errors. If file errors exist, this will generally mean that the receiving tax administration cannot open or use the file.
CBDT Guidance
The guidance discusses tax ruling template information provided by participating countries that Indian tax examiners may review to determine whether appropriate tax is reported to the CBDT for the first five types of tax rulings listed above (e.g., rulings related to preferential regimes). Indian examiners may use tax ruling information involving preferential tax regimes (e.g., patent box) to “… identify and assess the extent of economic activity actually reported in India and whether the income offered in India is commensurate to the same.”
Indian examiners should treat all tax ruling information received from participating countries as confidential. Should the examiners need the underlying information from their review of the template, they can request it from the tax authority of the providing country.
The guidance applies from the date of issuance (i.e., November 22nd).
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