HDG - Base Erosion & Profit Shifting (BEPS) - Conceptual Analysis & Country by Country (CbyC) Reporting 9 Aug 2015

Base Erosion and Profit
Shifting (‘BEPS’) –
Conceptual Analysis and
CbyC reporting
ICAI International Tax Convention
Western India Regional Council
Baroda and Anand Branches
C.A. Hitesh D. Gajaria
9 August 2015
•

Areas of discussion
OECD BEPS Action Plan1
Action 13 – Transfer Pricing Documentation and Country-by-Country reporting9
Action 8 – Transfer Pricing aspects of intangibles7
Action 1 – Address the tax challenges of digital economy2
Action 2 – Neutralise the effect of hybrid mismatch arrangements
Action 5 – Counter harmful tax practices more effectively, taking into account transparency and substance
Action 6 – Prevent treaty abuse
Action 15 – Develop multilateral instrument
3
4
5
6
Action 10 – Transfer Pricing aspects of intragroup services – Discussion draft8

Organization for
Economic Co-operation
and Development
(OECD)
BEPS Action Plan
Organization for
Economic Co-operation
and Development
(OECD)
BEPS Action Plan

© 2012 KPMG, an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights
reserved.
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OECD – BEPS 2014/15OECD BEPS Action Plan – In a nutshell
19 July 2013 - OECD Action Plan on Base Erosion and Profit
Shifting (BEPS) - 15 focus areas for potential change in international
tax rules and treaties, presented to G20 Finance Ministers
Purpose - Ensure profits are taxed where economic activities
generating them are performed and where value is created
15 Specific Actions – to be achieved before 31 Dec, 2015
On 16 September 2014, OECD released its first set of
recommendations for 7 out of 15 Action Points.
India is not a member of OECD, but has an observer status and is
serving on the OECD governing body for the BEPS project
Coherence
of corporate
tax at the
international
level
Transparency, coupled
with certainty and
predictability
Realignment
of taxation
and
substance
15 Actions organized around
three main pillars
“BEPS arises because under the existing rules MNEs are often able to artificially separate the allocation of their taxable profits
from the jurisdictions in which these profits arise
This can result in income going untaxed anywhere, and significantly reduces the corporate income tax paid by MNEs in the
jurisdictions where they operate, thus affecting competition, distorting investment decisions and reducing overall trust in the
tax system.“
– OECD Webinar

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OECD – BEPS 2014/15Why should ‘YOU’ care about BEPS ?
Political &
Public
attention
Changes in
tax legislation
Tax enforcement
environment
• Media – Fairly negative light
• Companies’ reputation at
stake : In particular
consumer facing brands
Tax Administrations to closely scrutinize global structures to identify possible abuses
Multinational Clients need to be
aware of these developments
and manage the risk of change
in law
What is likely to come out of BEPS project?
Changes in Domestic and International Tax Laws and Tax treaties leading to:
• Increased Reporting - Transparency: In particular Country-by-Country reporting
• Consensus in mismatches resulting from differences in laws: Addressing Hybrid mismatches
• Check Treaty abuses and aggressive tax planning

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OECD – BEPS 2014/15India's Consent - Important factor for consensus on BEPS
Three-Tier TP Documentation including Country by Country (‘CbyC’) reporting
• Companies should provide information relating to CbyC reporting starting FY 2016-2017
• Indian TP regulations on CbyC reporting would be made public (for comments) prior to implementation in 2016
Changes in Domestic laws and DTAAs as a result of BEPS recommendations
• Indian Government expects Indian Corporates to be aware of BEPS and proposed changes that may happen
• Indian Government would follow BEPS recommendations while drafting domestic laws which will be firmed up in 2016
after all BEPS recommendations are released.
• Development of a Multi-Lateral Instrument (MLI) is key to amend several DTAAs and India is supporting the same
• Grand fathering of previous tax structures - May not happen – but no decision has been taken as of now
Source:
1. Minutes of Tax officers offsite organized by Ministry of Finance and CII’s presentation at the meeting on 25 November 2014
2. www.taxsutra.com
Indian Competent Authority Mr Akhilesh Ranjan has stated that ‘the Indian Government expects Corporations to
start providing information relating to CbyC reporting from 2016-17, it was indicated that corporations should
be aware of BEPS and proposed changes that may happen and ignorance may not be a valid excuse’

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OECD – BEPS 2014/15India's Consent - Important factor for consensus on BEPS
Automatic Exchange of Information (AEOI):
• On 4 June 2015 India along with Australia, Canada, Chile, Costa Rica, Indonesia and New
Zealand joined the Multilateral Competent Authority Agreement (MCAA), bringing up the total
number of jurisdictions to have signed the MCAA to 61
• The MCAA implements the Standard for Automatic Exchange of Financial Information in Tax
Matters, developed by the OECD and G20 countries and presented in 2014. Till date, 94
jurisdictions have committed to implement the above standard, agreeing to launch the first
Automatic Information Exchanges in 2017 or 2018.
Source:
1. Minutes of Tax officers offsite organized by Ministry of Finance and CII’s presentation at the meeting on 25 November 2014
2. www.taxsutra.com
Automatic Exchange of Information (AEOI) by means of a Multilateral Competent Authority
Agreement (MCAA), to be used for CbyC Reports

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OECD – BEPS 2014/15
Action 1:
Address the tax
challenges of the digital
economy
Action 1:
Address the tax
challenges of the digital
economy

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OECD – BEPS 2014/15Action plan 1 - Background
Digital Economy
• Unparalleled reliance on intangible assets,
• Massive use of data (notably personal data),
• Widespread adoption of multi-sided business models capturing value from externalities generated by
free products,
• Difficulty of determining the jurisdiction in which value creation occurs.
This raises fundamental question as to how enterprises in the digital economy add value and make their
profits, and how the digital economy relates to the concepts of source and residence or the
characterization of income for tax purposes.
New ways of doing business may result in a relocation of core business functions and, consequently, a
different distribution of taxing rights which may lead to low taxation is not per se an indicator of defects in
the existing system.
It is important to examine closely how enterprises of the digital economy add value and make their profits
in order to determine whether and to what extent it may be necessary to adapt the current rules in order to
take into account the specific features of that industry and to prevent BEPS
MNEs use of gaps in the interaction of different tax systems to artificially reduce
taxable income or shift profits to low tax jurisdictions in which little or no
economic activity is performed

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OECD – BEPS 2014/15Action 1 – Address the tax challenges of the digital economy
Identify the main difficulties that the digital economy poses for the application of existing
international tax rules:
• Develop detailed options to address these difficulties, taking a holistic approach and considering both
direct and indirect taxation.
• Issues to be examined include, ability of a company to have a significant digital presence in the
economy of another country without being liable to taxation due to the lack of nexus under current
international rules.
• Attribution of value created from the generation of marketable location relevant data through the use of
digital products and services
• Characterisation of income derived from new business models
• Application of related source rules
• How to ensure the effective collection of VAT / GST with respect to the cross-border supply of digital
goods and services.
Such work will require a thorough analysis of the various business models in this sector.

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OECD – BEPS 2014/15Digital Economy – Key features
Mobility of (i) intangibles on which the digital economy relies heavily, (ii) users, and (iii)
business functions as a consequence of the decreased need for local personnel to
perform certain functions and (iv) flexibility in many cases to choose the location of
servers
Reliance on Data
Network effects, understood with reference to user participation, integration and
synergies
Use of multi-sided business models – Markets in Different jurisdictions
Monopoly / Oligopoly in certain business models relying heavily on network effects
Volatility due to low barriers to entry and rapidly evolving technology

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OECD – BEPS 2014/15Digital Economy - Challenges
Ring-fencing of the digital economy from the rest of the economy
Fragmentation of operations among multiple group entities and thereby qualify for PE
exceptions
Minimising the income allocable to functions, assets and risks
Using a subsidiary or PE to perform marketing or technical support
Maintaining mirrored servers to enable faster customer access to the digital products
sold by the group with a principal company contractually bearing the risks and claiming
the ownership of intangible generated by these activities
Maximise the use of deduction for payments made to other group companies in the form
of interest, royalties, fees etc.
Avoiding withholding tax
Absence of CFC regulations or CFC regime failing to apply certain categories of income
that are highly mobile or CFC regime that can be avoided by using hybrid mismatches

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OECD – BEPS 2014/15Tax Challenges raised by Digital Economy
Identification of sellers /
services providers
Determining the extent
of activities
Identification of
customers
Information collection
and verification
Administrative
challenges

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Action 2:
Neutralising Hybrid
Mismatches
Action 2:
Neutralising Hybrid
Mismatches

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OECD – BEPS 2014/15Hybrid Mismatches – Background
 Hybrid arrangements – Involve use of cross-border
differences in characterisation of entities and
instruments to produce mismatched tax outcomes
 Objective of the BEPS Action Plan is to develop
model treaty provisions and design domestic rules
to neutralize the effect of hybrid instruments /
entities by not permitting:
• Multiple deductions for a single expense
• Deduction in one country without
corresponding taxation in another
• Generation of multiple foreign tax credits for
one amount of foreign tax paid

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OECD – BEPS 2014/15Hybrid Mismatch – Domestic Rule Recommendations
A Co.
B Co.
Country A
Country BHybrid
Financial
instrument
DEDUCTION IN ONE COUNTRY WITHOUT
TAXATION IN ANOTHER:
 B Co issues a hybrid financial instrument to
A Co.
 Instrument is characterized as debt in
Country B and as equity in Country A
 Country B allows deduction to B Co. for
interest payments made on the instrument
 Country A treats the payment as ‘dividend’,
which is entitled to participation exemption
BEPS Recommendations:
 Country B to deny deduction to Payer (B Co.)
 Defensive rule: Country A to treat receipt as
ordinary income of A Co.
Interest

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OECD – BEPS 2014/15Hybrid Mismatch – Domestic Rule Recommendations
A Co.
Country A
Country B
B Co.B Co.
B Sub 1
(Operating Sub)
Bank
Interest
Loan
DOUBLE DEDUCTION ON PAYMENTS BY HYBRIDS:
 B Co. is a 100% subsidiary of A Co.
 B Co. is disregarded for Country A tax purposes
 B Co. borrows money and pays interest in Country B
(B Co. derives no other income)
 Interest payment are deductible in the hands of A
Co. in Country A, since B Co. is disregarded
 B Co. is consolidated with B Sub 1 for tax purposes
in Country B – Interest paid by B Co. claimed as
deduction against operating income of B Sub 1
BEPS Recommendations:
 Country A (Parent Jurisdiction) to deny deduction
 Defensive rule: Country B (Payer Jurisdiction) to
deny deduction

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OECD – BEPS 2014/15Hybrid Mismatch – Treaty Recommendations
 Dual resident entities: Residential status to be determined by competent authorities on a case to case
basis rather than based on POEM
 Transparent entities: Transparent entities to be entitled to treaty benefits to the extent income is treated for
tax purposes as income of a resident
UK
Partnership
Income from India
US Partners UK Partners
Outside India
India
60%40%

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OECD – BEPS 2014/15Hybrid Mismatch – Impact of BEPS recommendations in India
BEPS recommendations (once implemented) are likely to impact cross-border
arrangements / instruments where tax characterisations vary in both countries
In an Indian context, such risks may typically revolve around situations where :
• Debt Instruments issued by Indian Cos (e.g. CCDs) may be considered as equity
in the debenture holders’ jurisdictions
• Indian Partnerships / LLPs may be considered pass-through in overseas
jurisdictions
• Dual-resident companies
There is a need to identify arrangements like the above which could be hit under BEPS
and to take remedial measures

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Action 5: Countering
Harmful Tax Practices by
Transparency and
Substance
Action 5: Countering
Harmful Tax Practices by
Transparency and
Substance

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OECD – BEPS 2014/15Countering Harmful Tax Practices by Transparency
and Substance
 Forum on Harmful Tax Practices (‘FHTP’) to take necessary action to:
• Review of member country preferential regimes;
• Strategy to expand participation to non-OECD member countries; and
• Consideration of revisions or additions to the existing framework
 In Review of the existing preferential regimes, emphasis put on:
• Devising methodology to define the substantial activity requirement in
the context of IP regimes;
• Improving transparency through compulsory spontaneous exchange on
rulings related to preferential regimes
 Progress report provided on the review of regimes of OECD member and
associate countries in the OECD / G20 Project on BEPS

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OECD – BEPS 2014/15Factors
Four Key factors Eight other factors
• No or low effective rates on income
from geographically mobile financial
and other service activities
• Ring fenced from the domestic
economy
• Lacking Transparency
• No effective exchange of information
with respect to the regime
• Artificial definition of the tax base
• Failure to adhere to international transfer pricing
principles
• Foreign source income exempt from residence
country taxation
• Negotiable tax rate or tax base
• Existence of secrecy provisions
• Access to a wide network of tax treaties
• Regime promoted as a tax minimization vehicle
• Encourages purely tax-driven Operations and
Arrangements that involve no substantial
activities
Where a preferential regime has been found to be actually harmful, the relevant country is given the opportunity to abolish the
regime or remove the features that create the harmful effect. Other counties may take defensive measures to counter the effects
of the harmful regime, while at the same time continuing to encourage the country applying the regime to modify or remove it.

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OECD – BEPS 2014/15Action 5 – Exchange of information - Flowchart
Is the regime within the scope of the FHTP’s work?
Is the regime a preferential regime?
Does the regime meet the no or low effective tax rate factor?
Is there a taxpayer-specific ruling related to a regime that meets the first three filters?
Inbound investment into,
outbound investment out of,
country granting ruling or
transactions or situation
involving other jurisdictions?
Unilateral
Transfer
Pricing Ruling
Bilateral /
multilateral
APA?
No requirement to spontaneously
exchange information
Requirement to
spontaneously
exchange
information with
affected country
Requirement to
spontaneously exchange
information only with affected
country not involved in the
agreement of the APA
No
No
No
No
No
Yes
Yes
Yes
Yes
Yes
If the ruling is not a
transfer pricing ruling
If the ruling
is a Transfer
Pricing
ruling
Domestic
context
Cross border
context

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Action 6:
Preventing Grant of Tax
Treaty Benefits in
inappropriate
circumstances
Action 6:
Preventing Grant of Tax
Treaty Benefits in
inappropriate
circumstances

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OECD – BEPS 2014/15What is “Tax Treaty Abuse”?
• Term “abuse” in the context of tax treaty has not been defined in the Model Tax Conventions (OECD or UN)
• Paragraph 9.5 of the Commentary on Article 1 (OECD Model Convention 2010 update) :
• main purpose of entering into the transaction was to secure a more favorable tax position; and
• obtaining that more favorable treatment in given facts would be contrary to the object and purpose of
the relevant provisions of the tax treaty
• Instances of tax treaty abuse:
• Treaty shopping
• Conduit arrangements
• Acquiring residency of a specific country
• Attributing profits or income to a specific entity
• Changing the character of an income; etc.
• Treaty abuse, and in particular treaty shopping, identified as one of the most important sources of
BEPS concerns

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OECD – BEPS 2014/15Action 6 – BEPS Action Plan
 Objective – To modify rules to more closely align the allocation of income with the economic activity that
generates the income
 Draft Report Published – Final Version Expected in September 2015
Section A Section B Section C
• Develop model treaty
provisions
• Recommend design of
domestic rules
• Clarify that tax treaties are not
intended to generate double
non-taxation
• Identify Policy Considerations
for Countries to consider while
entering into tax treaties

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Action 15:
Develop Multilateral
Instrument to modify
Bilateral Tax Treaties
Action 15:
Develop Multilateral
Instrument to modify

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OECD – BEPS 2014/15Multilateral instrument to modify
 Need to address current bilateral tax
treaty system which facilitates BEPS
• Updation of the current tax treaty
network highly burdensome due to
multiple number of bilateral treaties
 Focus on feasibility of use of a multilateral
instrument to implement BEPS measures
and modify bilateral tax treaties
• Multilateral instrument feasible and
desirable based on precedents from
various areas other than tax
 Convening an International Conference to
develop the multilateral instrument by
OECD and G20 countries

BEPS – Action plans –
Transfer Pricing

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Action 8
Transfer Pricing Aspects
of Intangibles
Action 8
Transfer Pricing Aspects
of Intangibles

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OECD – BEPS 2014/15Transfer Pricing aspects of Intangibles
• Objective
• Prevent BEPS that may result from abuse of
TP rules related to cross-border relocation of
intangibles and other transactions involving
use of intangibles
• Assure that transfer pricing outcomes are in
line with 'Value Creation”
To be finalised in 2015 along with other BEPS
action points that are closely related (risks and
capital, high-risk transactions and hard to value
intangibles)
Key areas covered in the Guidance
• Detailed guidance on location savings,
assembled workforce and MNE group
synergies as part of Chapter I of OECD
guidelines
• Broader definition of intangible property (six
specific categories of intangibles discussed)
• Ownership of intangibles and entitlement to returns –
who is entitled to returns from intangibles
• Relevant considerations for various transactions
involving intangibles
• Supplementary guidance around determining arm’s
length conditions involving intangibles – considers
unique features of intangible transactions

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Extent of Intangible Related Returns to be attributed
Purchasing Function
Controlling Function
Funding Function
Performing Function
Transfer Pricing aspects of Intangibles…cont’d.

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Who is entitled to return from intangibles?
• Legal ownership and Contractual Arrangements to be only
the starting point for analysis
• Next steps, more importantly focus on thorough analysis
of FAR and actual conduct of the various entities
- Who are the parties performing and controlling the
functions related to the development, enhancement,
maintenance, protection and exploitation of intangibles?
- Who is contributing the assets, including intangibles,
physical assets and funding? Only funding without
assumption of other risks entitles to only return on
funding, not the entire intangible related returns
- Confirm the consistency between conduct of the parties
and the legal arrangements
- Recharacterise the transactions as necessary to reflect
each party’s contributions towards the intangibles
Legal ownership by itself is not sufficient to decide
the allocation of returns
Supplementary guidance on arm’s length
price
• Options realistically available to each of the
parties to the transactions
• Consideration of the unique features of
intangibles (viz. exclusivity, extent and
duration of legal protection, useful life, stage of
development etc.)
• Comparable Uncontrolled Price (CUP) and the
Profit Split Method are likely to be most useful
• Other Valuation techniques may also be
useful (like income and discounted cash flow
techniques)
• Rule of thumb should not be used
• Guidance does not provide a comprehensive
summary of valuation techniques available nor
does it endorse or reject any valuation
standards utilized by valuation professionals
Transfer Pricing aspects of intangibles…cont’d.

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OECD – BEPS 2014/15India Perspective
• Location savings – Even where local
comparables are available, specific
adjustment on account of location savings are
required – view of Indian Revenue Authorities
(IRA)
• Marketing intangibles – Marketer / distributor
should be compensated for enhancing the
value of trademarks and other marketing
intangibles
• R&D arrangements – appropriate
compensation for research services will
depend on all the facts and circumstances
(whether research team possesses unique
skills and experience, bears risks, uses its
own intangibles etc.)
What needs to be done : Companies operating in India need to analyze:-
• Legal ownership and contractual arrangements vis-à-vis intangibles to begin with
• As next steps more importantly focus has to be on thorough analysis of FAR and actual conduct of the various
entities
Various issues included in the Guidance are contemporary, highly
debated, and frequently litigated TP issues in India - Indian tax
authorities are likely to draw inference and support from OECD
guidelines in determining the return from intangibles
Even before the introduction of the BEPS action plan the IRA
authorities issued Circular no. 6 which discusses circumstances in
which PSM will apply for determination of compensation in case of
R&D centers developing intangibles.
India also adopts the ‘Significant Peoples Function’ as a criteria in
allocation of profits relating to intangibles which is in line with OECDs
guidance
Supreme Court to now decide on AMP expense – whether an
international transaction. But AMP activity being closely linked to
overall marketing and distribution, can be benchmarked on an
aggregate basis.

reserved.
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Action 10
Intra-group services –
Discussion Draft
Action 10
Intra-group services –
Discussion Draft

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OECD – BEPS 2014/15Intra-group services – Discussion Draft
Key Areas Covered
• Determine whether intra-group services
have been actually rendered. Focus areas –
Benefits Test, Shareholder activities,
Duplicative services and Agency services
• Determination of arm’s length price – Direct
charge methods vs. Indirect charge methods
• What constitute LVIGS?
• Clarifying the meaning of shareholder activities and
duplicative costs
• Guidance on mark-ups, appropriate cost allocation
methodologies, benefits test and required
documentation
Objective
• Focus on developing rules to prevent BEPS
through the use of transactions (management
fees, head office expenses etc) which would
not, or would only very rarely, occur between
independent parties
• Revision of Chapter VII of the OECD guidelines related
to Intra-Group Services (IGS)
• Simplified approach suggested to deal with “Low Value-
adding Intra-Group Services (LVIGS)” – New section D
proposed to be added to Chapter VII

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OECD – BEPS 2014/15Low Value-adding Intra-Group Services – LVIGS
Definition
• Services of supportive nature and not a part of core business of the Group
• Do not require the use of or lead to the creation of valuable and unique intangibles
• No assumption, control or creation of substantial or significant risk
• Understand the nature of the services in order to classify them as LVIGS. LVIGS - Supportive in nature and
not forming part of the core business of the MNE group.
Following activities - likely to meet the definition of LVIGS Following activities - not LVIGS
Accounting and auditing Services relating to the core business of the Group
Processing and management of account receivable and
account payable
R & D , manufacturing and production services
Human resource related activities Sales, marketing and distribution activities
Monitoring and compilation of data relating to – health, safety,
environment etc
Financial transactions
Information technology services Insurance and reinsurance
Internal and external communication and public support
services
Extraction, exploration or processing of natural resources
Legal services / activities relating to tax obligations / general
services of administrative or clerical nature
Services of corporate senior management

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OECD – BEPS 2014/15Intra-group services – LVIGS
37
Satisfaction of a simplified benefits tests :
 Onerous requirements of the “benefits tests” for LVIGS dispensed with. Simplified documentation
and reporting requirements should satisfy the conditions of “benefits tests” for LVIGS
 Only one member of the MNE group electing for application of simplified method required to
maintain simplified documentation
 All tax administrations should generally accept the charges on account of such LVIGS, without
requiring each entity taxpayers to bear the onerous burden of justifying the “benefits tests” for such
services through extensive documentation.

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38
• Draft guidelines will enable the taxpayers and tax administrations to focus their resources on
high risk transactions while they can adopt a standard norm for routine LVIGS
• For a Captive Shared Service center, certain points such as nature of services outlined as ‘low
value-adding’, manner of classifying core and non-core business activities, and proposed
mark-up in the range in 2 per cent to 5 per cent etc. may be challenged by IRA
• MNCs need to take cognizance while planning the cross charge for services which might be
routine i.e. low-value adding or high end.
• Adoption of simplified approach for LVIGS may be advantageous for both the taxpayers and
tax administrations, as it not only reduces the compliance burden of the taxpayers but also
reduces disputes between taxpayers and tax administration.
For Outbound IGS, it remains to be
seen how India will adopt the above
Guidance, once implemented given
the fact that IRA has been claiming
much higher markups compared to
the recommended range of 2 to 5
percent for certain low end services
For Inbound IGS, it would be
interesting to see how India adopts
above Guidance, in light of the fact
that IRA has been adopting
aggressive approach in proposing
adjustments and seeking voluminous
documentation for such services

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Action 13
Transfer Pricing
Documentation and
Country-by-Country
(CbyC) reporting
Action 13
Transfer Pricing
Documentation and
Country-by-Country
(CbyC) reporting

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Guidance on TP Documentation and CbyC Reporting
Background
● Objective: Risk Assessment
● Approach: Provides an overview of the multinational group
and business
Master file
● Objective: Appropriate considerations in setting transfer
prices
● Approach: Provides additional detail on the operations and
transactions relevant to that jurisdiction
Local file
● Objective: Prioritize Audit Issues
● Approach: Provides summary data by jurisdiction including
revenue, income, taxes, and indicators of economic activity
CbyC reporting

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• To provide the MNE’s blueprint
– The group’s organisational structure
– Description of Group's business, intangibles, intercompany financial activities, financial and tax positions
Master file
• To provide jurisdiction-wise information on global allocation of income, taxes paid / accrued, the stated
capital, accumulated earnings, number of employees and tangible assets
• Entity-wise details of main business activities which will portray the value chain of inter-company
transactions.
Country by Country (‘CbyC’) Report
Local file
• To provide material transfer pricing positions of the local entity / taxpayer with its foreign affiliates
– Demonstrates arm’s length nature of transactions
– Contains the comparable analysis.
Three-tier documentation structure proposed for all countries
TP documentation and CbyC reporting

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CbyC Template –Page 1*
Country
Revenue
Profit(loss
) before
income
tax
Income
tax paid
(on a cash
basis)
Income
tax
accrued –
current
year
Stated
capital
and
accumulat
ed
earnings
Number of
employee
s
Tangible
assets
other tan
cash and
cash
equivalent
s
Related
party
Unrelated
party Total
Country A X X X X X X X X X
Country B X X X X X X X X X
CbyC Template –Page 2* (onwards)
Activities
Country
Constitue
nt entities
resident in
country
Country of
organisation or
incorporation
in different
from country of
residence
R&D
Purchasing&
procurement
Manufacturing
&production
Sales,
marketing&
distribution
Administrative,
management&
support
services
External
service
business
Regulated
financial
services
Insurance
Holding
company
Dormant
Other
Country
A
Entity A Country B  
Entity B   
*Information obtained from annexure III to chapter V of OECD/G20 base erosion and profit shifting
Project: Guidance on transfer pricing documentation and Country-by-Country reporting
Country-by-Country Reporting Template

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OECD – BEPS 2014/15Implementation Guidelines on CbyC Template
February 6, 2015 – Key Elements - OECD published Guidance on the implementation of CbyC:
● Consolidated group revenue in the preceding fiscal year of 750 million
Euros (INR 5,250 crore) or more
Which MNEs covered?
● For the fiscal years beginning on or after January 1, 2016
● MNEs allowed 1 year from the fiscal year end to file the CbyC report
Timing
● File CbyC report in the country of the ultimate parent of the MNE
● That country will exchange this information on an automatic basis with
jurisdictions in which the MNE operates and that meet the necessary
conditions described in guidance.
Where filed and mechanisms for
exchange
● Confidentiality, Consistency and Appropriate Use
Necessary Conditions for
Obtaining and Using CbyC Reports
● Key elements of statutory legislation
● Agreements based on existing international agreements for the
automatic exchange of the CbyC reports between jurisdictions (both
bilateral and multilateral)
Implementation Package
● Primary mechanism – Automatic Exchange from MNE parent country
● Secondary mechanism – MNE file the CbyC report locally or with next
tier parent country that would automatically exchange
Government-to-Government
Mechanisms for Exchange of CbyC
Reports

reserved.
44
Necessary to highlight / action to be taken by the Company management / Audit Committee -
implications and meeting the objective of Transparency of BEPS Project very important
* Minutes of Tax officers offsite organized by Ministry of Finance and CII’s presentation at the meeting on 25 November 2014
Key Considerations:
• Mechanism for sharing information with tax administrations through Automatic Exchange of Information
under tax treaties
• Taxpayers concerns about sharing business sensitive data and increasing compliance cost and burden
• CbyC report ought not be used by tax administrations to propose TP adjustments based on a global
formulary apportionment of income
• However CbyC report would entitle the tax authorities to make further inquiries into the MNEs cross-border
transactions
What needs to be done
• Companies operating in India especially Indian headquartered companies need to tie up the functional analysis of
Indian operations vis-à-vis global operations
• Have Management discussions to re-align functions and pricing to ensure that profits/income are allocated in
accordance with value creation in each jurisdiction
• Should analyse their internal accounting systems and MIS data, and upgrade the same to enable gathering of
information required in Master File and CbyC report
Indian Competent Authority commented* – Indian Government expects that companies should provide
information relating to CbyC reporting starting from FY 2016-2017

reserved.
45
OECD – BEPS 2014/15Key Don’ts
-- 2 of 2
ADI India
• Avoid using ‘Sales Manager’ or ‘Sales’ in the designation of ADI India employees, instead evaluate
using the term ‘Marketing Support Head / Manager’ in their designations.
• Emails, website, marketing brochure, advertisements, events, related documents etc. to
appropriately reflect the above aspects and India arrangements.
• There should not be any reporting by the Indian employees to any other personnel of ADI Australia.
• Commercial invoice / debit notes etc. should not be signed by the same personnel who are on the
BOD of ADI India.
Thank you
Hitesh D. Gajaria
Chartered Accountant
Mobile: +91 9892333375

HDG - Base Erosion & Profit Shifting (BEPS) - Conceptual Analysis & Country by Country (CbyC) Reporting 9 Aug 2015

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