Clarification regarding definition of the “accounting year” in section 286 of the Income Tax Act, 1961 vide Union Budget 2019
Section 286 of the Act contains provisions relating to specific reporting regime in the form of Country-by-Country Report (CbCR) in respect of an international group. It provides that every parent entity or the alternate reporting entity, resident in India, shall, for every reporting accounting year, in respect of the international group of which it is a constituent, furnish a report, to the prescribed authority within a period of twelve months from the end of the said reporting accounting year, in the form and manner as may be prescribed.
Several concerns have been expressed that in case of an alternate reporting entity (ARE) resident in India whose ultimate parent entity is not resident in India, the accounting year would always be the accounting year applicable in the country where such ultimate parent entity is resident and cannot be the previous year of the entity resident in India. Accordingly, it has been requested that this unintended anomaly as regards the interpretation of accounting year in case of ARE, resident in India may be removed.
In order to address such concerns and to bring clarity in law, it is proposed to suitably amend section 286 so as to provide that the accounting year in case of the ARE of an international group, the parent entity of which is not resident in India, the reporting accounting year shall be the one applicable to such parent entity.
This amendment is clarificatory in nature.
The amendment will take effect retrospectively from the 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.
Extract of Clause 67 of Finance Bill 2019
67. Amendment of section 286.
In section 286 of the Income-tax Act, in sub-section (9), in clause (a), in sub-clause (i), the 45 words “or alternate reporting entity” shall be omitted and shall be deemed to have been omitted with effect from the 1st day of April, 2017.
Note on Clause 67 of Finance Bill 2019
Clause 67 of the Bill seeks to amend section 286 of the Income-tax Act relating to furnishing of report in respect of international group.
The provisions of the said section, inter alia, provide for specific reporting regime containing revised standards for transfer pricing documentation and a template for country-by-country reporting.
Sub-clause (i) of clause (a) of sub-section (9) of the said section defines the expression “accounting year” to mean a previous year, in a case where the parent entity or alternate reporting entity is resident in India.
It is proposed to amend the said sub-clause so as to provide that the accounting year in case of an alternate reporting entity, resident in India, whose ultimate parent entity is outside India, shall not mean the previous year but an annual accounting period, with respect to which the parent entity of the international group prepares its financial statements under any law for the time being in force or the applicable accounting standards of the country or territory of which such entity is resident.
This amendment will take effect retrospectively from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent assessment years.