Government notifies pact with US to check tax evasion by MNCsDate: 30 April 2019 Tags: Public Finance
Government has notified inter-governmental agreement with United States for exchange of country-by-country (CbC) reports filed by multinational enterprises (MNEs) regarding income allocation and payment of taxes. It comes after this agreement was signed by both countries in March 2019. This agreement is aimed at providing relief to subsidiaries of US multinationals and ensuring a check on cross-border tax evasion,
This agreement for exchange of CbC reports, along with Bilateral Competent Authority Arrangement, will enable both countries to automatically exchange CbC reports filed by the ultimate parent entities of MNEs in respective jurisdictions, pertaining to the years commencing on or after January 1, 2016. As a result, Indian entities will not be required to do local filing of the CbC Reports in India.
Significance of agreement
- It will provide relevant and reliable information to perform an efficient and robust transfer pricing risk assessment analysis.
- It will also obviate the need for Indian subsidiary companies of US MNCs to do local filing of CbC reports, thereby reducing the compliance burden.
- It will provide reliable information, ensure strong risk assessment analysis and help keep a check on tax evasion.
What is CbC report?
It aggregates country-by-country information relating to global allocation of income, taxes paid and certain other indicators of MNEs. It also contains list of all group companies operating in particular jurisdiction and nature of main business activity of each such constituent entity. Its provisions are prescribed under Action 13 Report of OECD/G20 Base Erosion Profit Sharing (BEPS) Project,
MNEs having global consolidated revenue of 750 million euro or more (or Rs 5,500 crore in case of India) in a year are required to file CbC reports in their parent entity’s jurisdiction. India already has signed MCAA for Exchange of CbC reports, with 62 jurisdictions, which has enabled exchange of CbC reports.