Topics Covered: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.
What is a Country-by-Country (CbC) Report?
What to study?
For Prelims: What is CbC report?
For Mains: Need for and significance of these reports.
Context: With Central Board of Direct Taxes(CBDT) notifying rules for furnishing “Country-by-Country Report” (CbC) specifying information pertaining to all large multinational enterprises (MNEs), the Finance Ministry has said that Joint Director of Income-tax (Risk Assessment)-1 has been designated as the Income-tax Authority before whom particulars of the parent entity and alternate reporting entity would be notified.
Background:
The Organisation for Economic Cooperation and Development (OECD) has developed an Action Plan called “Base Erosion and Profit Shifting (BEPS) Action Plan 13” to ensure that a multinational enterprise would report its profit correctly where it is earned.
What is a Country-by-Country (CbC) Report?
The Base Erosion and Profit Shifting (BEPS) Action 13 report (Transfer Pricing Documentation and Country-by-Country Reporting) provides a template for multinational enterprises (MNEs) to report annually and for each tax jurisdiction in which they do business the information set out therein. This report is called the Country-by-Country (CbC) Report.
This information enables an enhanced level of assessment of tax risk by both tax administrations.
What CBC contains?
- Aggregated country-by-country information relating to the global allocation of income, the taxes paid, and certain other indicators of a multi-national company.
- A list of all the constituent entities of the multi-national company operating in a particular jurisdiction and the nature of the main business activity of each constituent entity.
What is BEPS?
Base erosion and profit shifting refers to the phenomenon where companies shift their profits to other tax jurisdictions, which usually have lower rates, thereby eroding the tax base in India.
India in July 2019 ratified the international agreement to curb base erosion and profits shifting (BEPS)– Multilateral Convention to Implement Tax Treaty Related Measures.
About the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting:
The Convention is an outcome of the OECD / G20 BEPS Project to tackle base erosion and profit shifting through tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.
Overview and significance of the convention:
- The Convention implements two minimum standards relating to prevention of treaty abuse and dispute resolution through Mutual Agreement Procedure.
- It will be applied alongside existing tax treaties, modifying their application in order to implement the BEPS measures.
- The Convention ensures consistency and certainty in the implementation of the BEPS Project in a multilateral context. The Convention also provides flexibility to exclude a specific tax treaty and to opt out of provisions or parts of provisions through making of reservations.
Insta Link:
Prelims Link:
- OECD- objectives, composition and overview of geographical location of members.
- OECD vs WEF.
- Difference between signing and ratification.
- What is BEPS?
Mains Link:
What are Country-by-Country (CbC) Report? Discuss their significance.
Sources: pib.
