India Signs OECD Country-by-Country Reporting Agreement

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By Dezan Shira & Associates
Editor: Tracie Frost

In an ongoing effort to increase transparency by multinational enterprises (MNEs), India joined Canada, Iceland, Israel, New Zealand and the People’s Republic of China in becoming the 39th signatory to the OECD ‘s Multilateral Competent Authority agreement for the automatic exchange of Country-by-Country reports (CbC MCAA). 

The Country-by-Country Reporting Agreement was conceptualized in 2013, when the OECD and G20 countries adopted the Base Erosion and Profit Shifting Action Plan (BEPS).  BEPS acknowledges that improving transparency for tax administrations by giving them adequate information to assess high-level transfer pricing is crucial for tackling the problems of tax base erosion and profit-shifting.  In response, the September 2014 Report on Country-by-Country reporting provides a template for MNEs to file an annual report for each tax jurisdiction in which they do business. This report is called the Country-by-Country Report.

Related Link Icon-IBRELATED: India’s Withholding Tax for Non-residents

The package resulted from two years of discussion involving all OECD and G20 countries, as well as more than a dozen developing countries. In a press release, the OECD reported that “following endorsement of the BEPS measures, the focus has shifted to designing and putting in place an inclusive framework for monitoring BEPS and supporting implementation of the measures, with all interested countries and jurisdictions invited to participate on an equal footing.”

The Country-by-Country report is aimed at MNEs such as Google, Apple, and Facebook, who are commonly believed to pay little corporate income tax due to complicated business structures that allow them to shift income from high tax jurisdictions to low tax jurisdictions.  Earlier this year, Google agreed to pay $185 million in back taxes to the United Kingdom after a government investigation into the company’s tax arrangements.  The CbC report requires that multinationals report country by country how much they make and what they pay in taxes. It will help ensure that tax administrations obtain a complete understanding of how MNEs structure their operations, and ensure that the confidentiality of such information is safeguarded.

Country-by-country reporting requires MNEs to provide summative information annually, in each jurisdiction where they do business, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. The OECD states that the reports “will also cover information about which entities do business in a particular jurisdiction and the business activities each entity engages in.”

By signing the CbC MCAA, India agrees to bilaterally and automatically exchange Country-by-Country Reports with other countries that have also signed the MCAA.  India will also receive CbC reports from other countries.  India has signed other such information sharing agreements in an effort to check the flow of black money and increase tax compliance.  Most notably, India signed the Foreign Account Tax Compliance Act (FATCA) with the United States in July 2015.

Observations

As India grows its technical and regulatory capacity on the international stage, information reporting agreements such as these will help India meet its goals to reduce tax avoidance. 

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