SKP Tax Alert
14 February 2015 | Volume 7 Issue 20
OECD recommendation: Country-by-country reporting to begin from 2016

In July 2013, the Organisation for Economic Co-operation and Development (OECD) and G20 countries adopted a 15-point Action Plan to address Base Erosion and Profit Shifting (BEPS) issues in a coordinated and comprehensive manner.  The primary purpose of the Action Plan is to provide countries with domestic and international instruments that will better align rights to tax in accordance with the economic activity.

Among other action points, Action 13 of the BEPS Project recognised that enhancing transparency for tax administrations by providing them with adequate information to conduct transfer pricing risk assessments and examination is an essential part of tackling the BEPS problem.
In accordance with this mandate, in September 2014, OECD published the 'Guidance on Transfer Pricing Documentation and Country-by-Country Reporting' report. This report described a three-tiered standardised approach to transfer pricing documentation which consists of:
  • A master file containing standardised information relevant for all multinational enterprise (MNEs) group members;
  • A local file referring specifically to material transactions of the local taxpayer; and
  • A country-by-country (CbC) report containing certain information relating to the global allocation of the MNE group's income and taxes paid together with certain indicators of the location of economic activity within the MNEs.
The explanatory statement issued by OECD added that in addition to a master file and local files to be provided by multinational companies, a template for CbC reporting to tax administrations has been agreed upon which would provide a clear overview of where profits, sales, employees, and assets are located and where taxes are paid and accrued. The CbC reporting template is expected to provide enough flexibility to limit compliance costs, while ensuring that tax administrations will have a useful tool for risk assessment. Thus, additionally, checks and balances in transmitting sensitive information and guidance for the same were to be developed by February 2015.
In line with the above, on 7 February 2015, OECD came out with the CbC reporting requirements.

Key highlights of the CbC reporting requirements
  1. Timelines to file the CbC Report
    It is recommended that the first CbC reports would be required to be filed for MNEs for fiscal years beginning on or after 1 January 2016.
  • For MNEs with the fiscal year ending on 31 December
    Being the first year, MNEs may be given time till 31 December 2017 to file their first CbC report. However, for the subsequent years, the report has to be filed on a year-on-year basis.
  • For MNEs with a fiscal year ending on a date other than 31 December
    The first CbC report would be required to be filed later in 2018, i.e. 12 months after the close of the relevant MNE group's fiscal year and would report on the MNE's first fiscal year beginning after 1 January 2016.
  1. Eligibility of MNE groups to file the CbC Report 
    Ultimate parent entities of MNE groups to file the CbC Report in their jurisdiction of residence.  As a threshold, MNE groups with annual consolidated group revenue in the immediately preceding fiscal year of less than Euro 750 million or a near equivalent amount in domestic currency is exempt from filing of the CbC report. It is pertinent to note that apart from the revenue threshold specified above, exemptions on the premise of any specific industry or non-corporate entity will not be available in order to comply with the CbC reporting requirements. The master file and local files are to be filed with the local tax administrations.
  1. Conditions to obtain and use CbC reports by tax administrations
  • Confidentiality: Jurisdictions should have in place and enforce legal protections of the confidentiality of the reported information.
  • Consistency: Jurisdictions should utilise the standard template as contained in Annex III of Chapter V of the Transfer Pricing Guidelines included in the September report.
  • Appropriate Use: Jurisdictions will commit to use the CbC report for assessing high-level transfer pricing risks. Jurisdictions may also use the CbC report for assessing other BEPS-related risks.  However, transfer pricing adjustments should not be proposed on the basis of the income allocation formula based on the CbC reporting. 
  1. Government-to-government mechanisms to exchange CbC reports
    Implementing arrangements for the automatic exchange of the CbC Reports under international agreements will be developed.  The work related to such implementing arrangements will include the development of competent authority agreements based on existing international agreements (the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, bilateral tax treaties and Tax Information Exchange Agreements).  Comprehensive implementation package is expected to be developed by April 2015.
SKP's Comments
It is imperative that country-specific domestic legislations will be modified to enable recommendations of the OECD. India being part of the G20 nations as well as an active supporter for OECD's BEPS project, it is expected that the guidelines for transfer pricing documentation, including the requirements of the master file, local files and CbC reporting will be included in the Indian transfer pricing regulations at an early date. Whether it is included in the upcoming Budget of 2015 is to be seen. This also goes well with the typical requirements of the Indian tax authorities during the assessment to obtain documentation maintained by the overseas group companies and other global economic information of the MNE group.

Currently, the present requirements of the law are comprehensive and detailed as compared to global standards for transfer pricing documentation; however, with the above requirements, they will become all-encompassing. As taxpayer entities, the above developments are crucial, especially the proposed automatic exchange of information between countries, and a close review of the global transfer pricing policies and existing level of transfer pricing documentation is recommended.

In case of any further clarifications, please feel free to write to us at

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