Country-by-Country Report
Income Tax (IT) department designates authority for information relating to country-by-country report relating to Multinational Enterprises (MNEs).
Background
- Organisation for Economic Cooperation and Development (OECD) had developed an Action Plan called “Base Erosion and Profit Shifting (BEPS) Action Plan 13” to ensure that a multinational enterprise would report its profit correctly where it is earned.
- Under BEPS Action Plan 13, all large multinational enterprises (MNEs) are required to prepare a Country-By-Country (CBC) report with aggregate data on the global allocation of income, profit, taxes paid and economic activity among tax jurisdictions in which they operate.
Country-by-Country (CbC) report
- CbC Report is an annual return that breaks down key elements of the financial statements by jurisdiction.
- The report provides local tax authorities visibility to revenue, income, tax paid and accrued, employment, capital, retained earnings, tangible assets and activities of the concerned Multinational Enterprises (MNE).
- This report is used as a corroborating material by Income-tax Authorities in carrying out a revenue risk assessment.
Base Erosion and Profits Shifting (BEPS)
- BEPS project is an initiative of OECD approved by the G20, to design a globally standardized rule to check tax avoidance practices by the MNCs so that there will be no tax base erosion.
- Base erosion and profit shifting refers to the phenomenon where companies shift their profits to other tax jurisdictions, which usually have lower rates, thereby eroding the tax base in India.
- India in July 2019 ratified the international agreement to curb Base Erosion and Profits Shifting (BEPS) called Multilateral Convention to Implement Tax Treaty Related Measures (MLI).
- The Convention is an outcome of the OECD / G20 BEPS Project to tackle base erosion and profit shifting through tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.