India has signed a multilateral pact that would help it gain a better understanding on the way multinational enterprises structure their operations around the world and allocate incomes and taxes paid.
The Multilateral Competent Authority Agreement for automatic exchange of country-by-country reports (CbC MCAA) was signed by India at Beijing on May 12.
Besides India, five other countries – Canada, China, Iceland, Israel and New Zealand – also signed the pact on the same day, taking the total number of signatories to 39 countries.
The CbC MCAA allows all signatories to bilaterally and automatically exchange country-by-country reports with each other as contemplated by Article 13 of BEPS (Base Erosion and Profit Shifting) Action plan.
The OECD/G20 BEPS project had set out 15 key actions to reform the international tax framework and ensure that profits are reported where economic activities are carried out and value created.
BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax particularly from multinational enterprises.
The Modi government had in this year's Budget introduced CbC reporting in the domestic law. The threshold for filing the report has been maintained at €750 million and the format is to be notified at a later date.
The due date for filing the CbC report for tax year 2016-17 would be November 30, 2017.
CbC reporting requires multinational enterprises to provide aggregate information annually in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with the other indicators of the location of economic activity within the MNE group.
Experts’ takeAmit Singhania, Partner, Shardul Amarchand Mangaldas & Co, a law firm, said that the Finance Bill 2016 had laid the foundation for CbC reporting and India had now signed the multilateral pact, adding that these two developments are testament to India's resolve to curb tax avoidance and promote transparency and exchange of information amongst nations.
Amit Maheshwari, Partner, Ashok Maheshwary & Associates, a CA firm, said Indian tax administrators can obtain complete understanding of how MNCs structure their operations and allocate income and taxes. Also, the confidentiality of such information is safeguarded as this is an entirely government-to-government channel for sharing information, he said. Similarly, other countries also stand to benefit by signing the multilateral agreement, he added.