Clarity needed to facilitate country-by-country reports

On 31 March, constituent entities (CEs) belonging to any multinational enterprise (MNE) group crossed the first lap of filing country-by-country (CbC) reports to the Indian tax authorities, disclosing information on revenues, profits and taxes. India is among the 60-odd countries that have implemented or taken steps to implement CbC reporting (CbCR) as part of committing themselves to the three-tiered documentation approach to transfer pricing advocated by the OECD in

action 13 of its Base Erosion and Profit Shifting (BEPS) Action Plan.

India is also one of the 68 countries that have signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, which entered into force on 12 May 2016. In addition, tax information exchange agreements and double taxation avoidance agreements that India has entered into with various countries provide for exchange of information.

The introduction of CbCR will increase costs of compliance and administration for MNE groups, while tax authorities will need to dedicate resources to comprehend and mine the CbCR data. A primary concern in CbCR is the extent to which such reporting could be used by the tax authorities in making transfer pricing assessments.

L Badri Narayanan is a partner and Bharathi Krishnaprasad is a senior associate at Lakshmikumaran & Sridharan.