Overview of Section 286 of Income Tax Act
India is one of the active members of BEPS initiative and part of international consensus. For the purpose of implementing the international consensus, a specific reporting regime in respect of Country by Country reporting and also the master file has been incorporated in the Income-tax Act, 1961 under section 286 of Income Tax Act.
The essential elements have been incorporated in the Income-tax Act, 1961 while remaining aspects would be dealt with in detail in the Income-tax Rules, 1962.
Applicability of Country by Country Reporting(CBCR)
The reporting provision shall apply in respect of an international group for an accounting year, if the total consolidated group revenue as reflected in the consolidated financial statement (CFS) for the accounting year preceding such accounting year is above a threshold to be prescribed i.e., Rs. 5,500 crore.
Where the total consolidated group revenue of the international group, as reflected in the consolidated financial statement, is in foreign currency, the rate of exchange for the calculation of the value in rupees of such total consolidated group revue shall be the telegraphic transfer buying rate (TTBR) of such currency on the last day of the accounting year preceding the accounting year.
Time limit for furnishing Country by Country Report(CBCR)
The parent entity of an international group or the alternate reporting entity, if it is resident in India shall be required to furnish the report in respect of the group to the Director General of Income-tax (Risk Assessment) for every reporting accounting year, within a period of 12 months from the end of the said reporting accounting year for which the report is being furnished, in the prescribed form and manner.
What is the meaning of Parent Entity
A constituent entity, of an international group holding, directly or indirectly, an interest in one or more of the other constituent entities of the international group, such that,
(i) it is required to prepare a consolidated financial statement under any law for the time being in force or the accounting standards of the country or territory of which the entity is resident; or
(ii) it would have been required to prepare a consolidated financial statement had the equity shares of any of the enterprises were listed on a stock exchange, and, there is no other constituent entity of such group which, due to ownership of any interest, directly or indirectly, in the first mentioned constituent entity, is required to prepare a consolidated financial statement, under the circumstances referred to in sub clause (i) or sub clause (ii), that includes the separate financial statement of the first mentioned constituent entity.
Details to be furnished by constituent entity
Every constituent entity resident in India, of an international group having parent entity that is not resident in India, shall notify the Director General of Income-tax (Risk Assessment) at least 2 months prior to the due date for furnishing CbC report:
(1)whether it is the alternate reporting entity of the international group; or
(2)the details of the parent entity or the alternate reporting entity, if any of the international group, and the country of territory of which the said entities are resident.
The report shall be furnished in prescribed manner and in the prescribed form.
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Details/ information to be included in Country by Country report
It should contain aggregate information in respect of:
- the amount of revenue,
- profit and loss before income-tax,
- amount of income-tax paid and accrued,
- details of stated capital, accumulated earnings, number of employees, tangible assets other than cash or cash equivalent in respect of each country or territory along with details of each constituent’s incorporation country and residential status, nature and detail of main business activity of each constituent entity and any other information as may be prescribed.
This shall be based on the template provided in the OECD BEPS report on Action Plan 13.
Furnishing of Country by Country report by resident constituent entity
A constituent entity of an international group resident in India, other than the parent entity or the alternate reporting entity, shall be required to furnish Country by Country report within 12 months from the end of the reporting accounting year to the DGIT (Risk Assessment), if the parent entity of the group is resident:
- in a country or territory in which it is not obligated to file report of the nature of CbC re port;
- in a country with which India does not have an arrangement for exchange of the CbC report; or
- there has been a systemic failure of the country or territory i.e., such country is not exchanging information with India even though there is an agreement and this fact has been intimated to the entity by the prescribed authority.
In case the parent entity of the constituent entity is resident of a country or territory, where, there has been a systemic failure of the country or territory and the said failure has been intimated to such constituent entity, the period for submission of the report shall be 6 months from the end of the month in which said systemic failure has been intimated.
Nomination of one constituent entity for furnishing Country by Country report
If there are more than one such constituent entity of the same group resident in India, other than the parent entity or the alternate reporting entity, then the group can nominate (under intimation in writing on behalf of the group to the prescribed authority), then, one constituent entity that shall furnish the report on behalf of the group. This entity would then furnish the report.
Non Applicability of Section 286 of Income Tax Act
If an international group, having parent entity which is not resident in India, had designated an alternate entity for filing its report with the tax jurisdiction in which the alternate entity is resident and such alternate entity has furnished such report on or before the date specified by that country or territory, then, the entities of such group operating in India would not be obliged to furnish report if the report can be obtained under the agreement of exchange of such reports by Indian tax authorities.
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Entity to furnish documents and information called for
The DGIT (Risk Assessment) may call for such document and information from the entity furnishing the report as it may specify in notice for the purpose of verifying the accuracy. The entity shall be required to make submission within 30 days of receipt of notice or further period if extended by the prescribed authority, but extension shall not be beyond a further period of 30 days.
Maintenance and furnishing of Master file
|1||Section 92D(1)(ii)||A person being constituent of an international group has to keep and maintain the prescribed information and document in respect of the international group. The information and document as mandated for master file under OECD BEPS Action 13 report shall be prescribed by way of Rules.|
|2||Section 92D(4)||The information and document shall also be furnished to the prescribed authority u/s 286(1) within such period as may be prescribed and the manner of furnishing may also be provided for in the rules|
Frequently Asked Questions(FAQ’s)
1.What is Country by Country reporting?
Ans. It is a new reporting obligation that requires MNEs that meet certain conditions to file annually a CbC report containing high-level data on the global allocation of the MNE’s income and taxes, and certain other measures of economic activity.
2.What is constituent entity?
Ans. A constituent entity is a separate business unit of the MNE group that is included in the consolidated group for financial reporting purposes.
3.What is alternate reporting entity?
Ans. The term, “alternate reporting entity” has been defined in section 286(9)(c) of the Act to mean any “constituent entity” of the “international group” that has been designated by such group, in place of the “parent entity”, to furnish CbC report in the country in which such “alternate reporting entity” is a tax resident.
4.What is a Master file?
Ans. Master files contain descriptive data, such as name and address, as well as summary information, such as amount due and year-to-date sales.