FinMin to issue rules for norms under BEPS

Applicable to transfer pricing for MNCs whose consolidated annual revenue is over Rs 5,000 crore

The finance ministry will issue rules and guidance to address some concerns and ambiguity over mandatory reporting norms with respect to transfer pricing for multinational companies whose consolidated annual revenue is over Rs 5,000 crore.

The government is also stepping up administrative systems to plug possible data leakage, said a senior tax officer at a conference on Friday.

CLEARING UP CONFUSION

• Govt to issue rules to address concerns over mandatory reporting norms with respect to transfer pricing
• Transfer pricing allows companies to reduce tax liabilities by transferring property to subsidiaries in offshore, lower-tax countries.
• These rules and guidance will aim at clarity on documentation required under Base Erosion and Profit Shifting (BEPS)

These rules and guidance will aim at clarity on the extensive data reporting and documentation required under the Base Erosion and Profit Shifting (BEPS) measures unveiled by the Paris-based OECD grouping in October last year, to address tax avoidance by MNCs. OECD is Organization for Economic Cooperation and Development.

The concerns are on confidentiality of the data shared by companies with the tax authorities of various jurisdictions, beside the difference in accounting years and rules in different countries. The matter was discussed at the conference on Friday.

Akhilesh Ranjan, a senior income tax officer, said: "The concerns on accounting years, joint ventures and permanent establishment are genuine and a guidance note is under preparation. That and the rules will be issued in a couple of months."

He was responding to Mohd Haroon Qureshi, head of tax, Asia-Pacific, at Genpact, who raised a slew of concerns. "There are concerns that are yet to be addressed. There will be so much data. There is going to be a mismatch of countries with respect to their accounting rules, currencies and the accounting years being used," said Qureshi.  

He noted that tax officers may even ask for reconciliation documents, though BEPS does not ask for it. Called the new world order in taxation, BEPS will require Indian companies with foreign presence and consolidated annual revenue of over Rs 5,000 crore in the previous year to furnish country-by-country reports (CBCR) to the Indian tax department, a master file and local file directly to the tax authorities of each country of operation.

The Indian department will be required to share the CBCR documents with tax authorities of other jurisdictions.

Qureshi said confidentiality was a big concern. "So much of data will be with the tax authorities. Sensitive data can't be leaked to competitors. This must be ensured," he said. Also, some order on how to treat that data.

On confidentiality concerns, Ranjan said the government was upgrading its administrative systems. "There has been a lot of discussion (on confidentiality) at the global forum. We need to protect privacy. We are putting in place administrative systems and are outlining the way of using this information, to prevent avoidable leakages," he said.

A three-tiered standardised approach is one among the 15 action points listed by BEPS to plug loopholes that allow companies to shift their profits to low tax countries and debt to high tax ones.

In India, close to 200 companies will have to comply with increased data reporting legislation, being mandated to furnish details such as revenue, capital, taxes paid and employees on a country by country basis.