BEPS Guidelines Stump MNCs
Several cos tell govt they may find it hard to comply with the rules in current form
Mumbai: A multinational pharma company moved about 70 employees from its research and development (R&D) facility in India to Switzerland last year to pre-empt any fallout once Base Erosion and Profit Shifting (BEPS) guidelines come into force in India.
The fear was that under the BEPS guidelines, questions could be raised as to why some multinational pharmaceutical companies maybe registering patents generated in India in their home countries.
Under BEPS, multinationals will be required to declare details of revenues earned, taxes paid, employees hired, supply chain management in every country they operate in. This has to be accomplished by March 31, 2018.
Despite scenario planning and tax analysis conducted beforehand, many multinationals were stumped after the government re- leased its draft guidelines under BEPS last week. The guidelines went beyond what was expected of the common framework, tax experts said. Usually, the draft is cleared after feedback from the industry. The BEPS guidelines are likely to be issued in its final form by December 2017.
Several multinationals have now approached the government claiming that they may find it hard to comply with the framework in its current form, even if they wish to, said people with direct knowledge of the matter.
Many, especially some global tech giants with Indian subsidiaries have also petitioned the government. Under the current set of BEPS guidelines in India, every multinational—including Indian ones—would be required to submit details of their global operations. While such a “master fi- le” is mandatory under BEPS, few countries are demanding that it should be submitted beforehand to tax authorities.
“The CbC (country by country) report will be shared automatically by the Indian Income Tax department with the tax department of other countries and vice versa. This is the start of mandatory information sharing of corporate data even when there is no pending litigation or enquiry,” said Jeenendra Bhandari, partner, MGB & Co.
BEPS is a global agreement with 15 action points to check tax avoidance by multinationals. BEPS deals with foreign multinationals operating in India and is meant to curb aggressive tax planning. Adoption of the BEPS framework means multinationals will have to disclose their profits, number of employees and taxes paid in each country.
Tax consultants point out that multinationals fear that there could be confidentiality issues when they submit details of their operations globally.
"Many companies are concerned that tax authorities would now scrutinise their operations in select countries drawing attention due to CbCr (country by country reporting). Many companies have started focusing on aligning their transfer pricing outcomes with value creation including creating substance at these locations by either hiring local employees or moving some Indian employees to these countries," said Ajay Rotti, partner at tax consultancy Dhruva Advisors.
“Some of the global parent of multinationals may not be comfortable submitting elaborate data to Indian tax authorities. India is one of the few countries asking multinationals to not only maintain a master file but also submit it and this is making several companies nervous,” said Tehmina Sharma, partner, tax, transfer pricing, at Deloitte Haskins & Sells.
BEPS framework asks for only preparing such a master file or blue print that includes all this information but India wants companies to submit this information to income tax officers which is causing panic.