Business Today
The 'Country-by-Country reporting' wave hits Indian shores

When countries around the world were walking on the path paved by the Organisation for Economic co-operation and Development ('OECD') for curbing Base Erosion Profit Shifting ('BEPS') by way of their 15 Action Plans; Indian multinational enterprises waite


Paresh Parekh

When countries around the world were walking on the path paved by the Organisation for Economic co-operation and Development ('OECD') for curbing Base Erosion Profit Shifting ('BEPS') by way of their 15 Action Plans; Indian multinational enterprises waited to see if India would follow suit to the same as well.  

Arun Jaitley stood strong on India's commitment to BEPS, as he rose to present the Union Budget in the Lok Sabha on the leap day of 2016, stepping forward to utter the words that would change India's tax reporting scenario - Country-by-Country Reporting ('CbCR')

CbCR, as proposed in the Union Budget 2016 is broadly in line with OECD BEPS Action Plan 13 report ('the BEPS report'). The report has recommended a three-tier standardised approach i.e. preparation and maintenance of Master file; Local file and CbCR.

Objective of preparing/ maintenance of aforesaid documents is to provide tax administrations with useful information to assess transfer pricing risks, make determinations about where audit resources can most effectively be deployed, and in the event audits are called for, provide information to commence and target audit enquiries.

CbCR is a proposed annual reporting framework for multinational enterprise ('MNE') groups stipulating provision of financial data by country and by entity. CbCR in India should include:


  • the aggregate information in respect of the amount of revenue, profit or loss before income-tax, amount of income-tax paid, amount of income-tax accrued, stated capital, accumulated earnings, number of employees and tangible assets not being cash or cash equivalents, with regard to each country or territory in which the group operates;
  • the details of each constituent entity of the group including the country or territory in which such constituent entity is incorporated or organised or established and the country or territory where it is resident along with the nature and details of the main business activity or activities of each constituent entity; and

  • any other information as may be prescribed.
Further, in relation to content of Master file, the Finance Bill, 2016 does not mention anything. However, the Memorandum to the Finance Bill requires the entities being constituent of an MNE group, to maintain prescribed information and documentation for Master file as mandated under the BEPS report. Per OECD, Master file shall contain information such as a high-level overview of the MNE group, its global business operations, its transfer pricing policies, etc.


Many countries across the world have adopted three-tiered standardised approach for CbCR in the form as provided in the BEPS report. The countries who have already introduced CbCR in their respective jurisdictions include: Australia, Denmark, France, Ireland, Italy, Mexico, Netherlands, Poland, Spain and United Kingdom. In addition to this, countries such as China, Finland, European Union, Japan, Norway, Portugal and United States have published draft CbCR legislations but not have adopted them as yet. In the near future, it will not be surprising to see many other countries adopting CbCR legislations.

CbCR shall be applicable to the MNE group of which consolidated revenues of the preceding year exceed a threshold of Euro 750 million equivalent in local currency (i.e. Rs 5,395 crore converted using exchange rate of approx. 1 Euro = Rs 72). The equivalent is to be converted basis exchange rate as on the last day of each previous year. Many countries in the world (who have enacted/proposed CbCR) have set threshold limit similar to the one prescribed by the BEPS report i.e. of Euro 750 million.

CbCR is required to be filed by:

  • The parent entity, resident in India; or
  • The Indian constituent entity in India if the parent entity is a resident of:
  • a country with which there is no agreement for exchange of information; or
  • a country which is not exchanging information despite an agreement; and
  • this fact has been intimated to the entity by the authorities.
  • If there are more than one constituent entities in India, the group may nominate one entity as the designated entity to furnish the CbCR in India.
  • If an international group, having parent entity which is not resident in India, had designated an alternate entity for filing its report with the tax jurisdiction in which the alternate entity is resident, then the entities of such operating group in India would not be obliged to furnish CbCR, if the CbCR can be obtained under the information exchange agreement between such jurisdictions.
The above filing requirements are again in line with the BEPS report.


CbCR has been proposed to be applicable in India from financial year 2016-17, if the consolidated MNE group revenue as on 31 March 2016
exceeds the threshold limit of Euro 750 million. CbCR must be furnished annually on or before the due date of furnishing the Return of Income for the relevant year. Accordingly, the first set of CbCRs is expected to be filed by November 2017.

Finance Bill, 2016 proposes penalties specifically for non-compliance with CbCR provisions. Penalty for failure to furnish the Master file and penalty for furnishing inaccurate particulars in the CbCR (subject to certain conditions) is prescribed at Rs 5,00,000 each. Further, penalty is also proposed to be levied for failure to submit CbCR by the prescribed date.

Introduction of CbCR is no doubt a right step towards aligning India's commitment to OECD's BEPS initiative. But it comes with its own set of challenges and its success will depend on how these challenges are mitigated by Indian MNEs.

CbCR provides tax authorities with a much greater level of visibility and transparency about the MNE's business. Hence, it is imperative for MNEs to ensure that the group entities performing important functions, controlling economically significant risks and contributing assets are entitled to an appropriate return reflecting the economic value creation.

In view of the ripple of change brought about by the CbCR framework, the MNEs will have to undertake risk assessment, evaluate preparedness from a reporting perspective and tie up loose ends at the earliest.

While it is heartening to see India walk shoulder-to-shoulder with developed economies in incorporation of the OECD guidelines, the implementation at ground level is where it will have to prove its mettle.

Paresh Parekh, Partner, International Tax, EY

Mukesh Bhanushali, Senior Tax Professional, EY also contributed to the article. Views expressed are personal.

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