BEPS Guide­lines Stump MNCs

Sev­eral cos tell govt they may find it hard to com­ply with the rules in cur­rent form

The Economic Times - - Companies: Pursuit Of Profit - Sachin.Dave@ times­group.com

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.

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