CbCR under OECD BEPS Action Plan 13
Action Plan 13 under the OECD’s Inclusive Framework on BEPS requires all large Multinational Enterprises (MNEs) to prepare a Country-by-Country Report (CbCR) so that Base Erosion and Profit Shifting (BEPS) risk assessments can be undertaken. BEPS refers to tax avoidance practices that exploit gaps and mismatches in tax rules to avoid paying tax.
Action Plan 13 requires all large MNEs above the prescribed limit (Euro 750 million) to prepare a CbCR containing “aggregate data on the global allocation of income, profit, taxes paid and economic activity among tax jurisdictions in which it operates.” [1] The CbCR is then shared with tax administrations in the jurisdictions where the MNE operates so that BEPS risk assessments can be undertaken by the respective tax authorities. The BEPS Action 13 report provides a template for MNEs to report information annually to each tax jurisdiction in which they carry out their business activities. A CbCR report typically specifies the tax jurisdictions of the MNE, its main business activities, the revenue it generates, its capital and reserves, and more. CbCRs help tax authorities gain a clearer picture of the MNE’s business activities so that potential tax avoidance schemes can be identified and BEPS can be curbed with more information at hand.
In brief, large MNEs have to provide an annual return called a “CbCR” that breaks down their financial statements for each jurisdiction in which they operate.
The Indian tax authorities have introduced the reporting requirements under Action Plan 13 through S. 286 of the Income Tax Act 1961.
S. 286 of the Income Tax Act 1961
India has captured the requirement of CbCR under BEPS Action Plan 13 in S. 286 of the Income Tax Act 1961. [2] S. 286 mandates every constituent entity that is resident in India which is a constituent of an international group to furnish CbCRs on an annual basis. S. 286 was introduced via the Finance Act of 2016 w.e.f. 1st April 2016 (i.e., AY 2017-18). It provides definitions related to reporting, clarifies the scope of constituent entities, specifies the criteria for reporting accounting years, and outlines systemic failure on international agreements for the CbCR exchanges.
This section sets the deadline for filing a CbCR as within 12 months from the end of the reporting accounting year of the MNC. S. 286 also imposes penalties for non-compliance which include an initial fine of INR 5 Lakhs with an additional fine of INR 50,000 per day. CbCRs are considered as confidential information and they are not disclosed to the public. However, under mutual exchange agreements, tax authorities may share it with other countries and help each other.
It can be said that S. 286 of the Income Tax Act 1961 aligns with the objectives of BEPS Action Plan 13 on CbCRs.
[1] OECD, ‘Action 13 Country-by-Country Reporting’ < https://www.oecd.org/tax/beps/beps-actions/action13/ >accessed 3rd April 2024.
[2] The Income Tax Act 1961, s 286.
Author Bio
