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India: Finance Bill 2018; changes to country-by-country reporting, Master file

India: Finance Bill 2018; changes to CbC reporting

The lower house of the parliament (Lok Sabha) on 14 March 2018 passed the Finance Bill 2018. The approved version of the bill includes changes to the budget’s proposals relating to country-by-country (CbC) reporting and Master file requirements.

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Background

India set out to incorporate a three-tier documentation structure, by following the recommendations of Organisation for Economic Cooperation and Development (OECD) under Action 13 of the base erosion and profit shifting (BEPS) project. These measures were proposed to be effective in India for the financial year 1 April 2016 to 31 March 2017. 

CbC reporting and Master file requirements were introduced, to be added to the already existing Indian transfer pricing documentation requirements. Detailed rules with respect to CbC reporting and Master file requirements and filing obligations were released in late October 2017. Read TaxNewsFlash

Still, there were certain open issues and ambiguities with respect to CbC reporting and Master file requirements that the budget 2018 attempted to clarify. Read TaxNewsFlash

Amendments approved by lower house

The lower house of the parliament (Lok Sabha) passed the Finance Bill 2018 with a few additional amendments to the CbC reporting and Master file requirements.

As introduced, the budget proposed that an Indian “constituent entity” (a resident of India and having a non-resident parent company) would be required to file CbC reports (if certain conditions were satisfied including that there is no agreement for the exchange of information between India and the country or jurisdiction where the parent company is located). The due date for filing the CbC report would be 12 months from the end of the reporting accounting year.

The version of the Finance Bill 2018 passed by the lower house now provides that the Indian constituent entity would be required to file the CbC report within the prescribed period. The implication of this change is that for jurisdictions (of the parent company) with which India does not currently have an agreement for the exchange of information or jurisdictions where there is no obligation to file a CbC report, the Indian constituent entity would now have an extension of time with regard to filing the CbC report domestically (in India). For instance, Indian constituent entities of U.S. headquartered multinational enterprises (MNEs) would not be required to file a CbC report in India on 31 March 2018 (as previously understood).

Another change in the lower house’s version of the Finance Bill 2018 concerns the definition of the term "agreement" for purposes of the exchange of information relating to CbC reports. This term has been amended so that it refers only to agreements for the exchange of CbC reports filed by the Indian parent company or the Indian "alternative reporting entity." CbC reports filed domestically by Indian constituent entities of foreign parent companies, thus, would be excluded. The implication of this change is that in situations when the Indian constituent entity has filed the CbC report in India, that CbC report could not be exchanged by the Indian authorities with tax authorities of other jurisdictions.

 

Read a March 2018 report [PDF 440 KB] prepared by the KPMG member firm in India

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