Country-by-country reporting Adapting to a changing documentation regime

Country-by-country reporting Adapting to a changing documentation regime

Setting the context The base erosion and profit shifting (BEPS) project of the Organisation for Economic Co-operation and Development (OECD) has brought countries to the threshold of a paradigm shift in the international taxation regime. G-20 countries (including India) have formally endorsed the BEPS actions. Since BEPS Action 13 on transfer pricing (TP) documentation and country-bycountry reporting (CbCR) is a minimum standard, its early introduction in India in the form of a three-tiered TP documentation package is no surprise. What is the three-tiered TP documentation package? Master file Provides a blueprint of a multinational enterprise (MNE) group s business Provides a high-level overview of the MNE group s TP policies (on goods, services, intellectual property, treasury, etc.) Local file Provides detailed information on inter-company transactions of the Indian taxpayer Provides assurance that local TP compliances have been achieved CbCR Aggregated tax jurisdiction-wise information on global allocation of income, taxes and indicators of economic activity supports high-level TP risk assessment. What does it aim to achieve? Transparency Significant additional and granular disclosures by taxpayers to local tax authorities and to authorities across jurisdictions Substance Increased scrutiny of substance of business arrangements to evaluate value creation and income (tax) generation

What are the proposed obligations? When? Applicable on an annual basis with effect from FY 2016 17 and onwards First filing due by 30 November 2017 Who? CbCR will be applicable to taxpayers having an annual consolidated group turnover of over 750 million EUR (approximately 5,500 crore INR) in the immediately preceding financial year. The master file and local file will be applicable to all taxpayers. The format for CbCR is yet to be prescribed, and so is the information and documentation required to be maintained for the master file. To whom? CbCR is to be filed with the ultimate parent s (or nominated entity s) home tax authority (to be shared via the automatic information exchange mechanism). The master file and local file are to be filed with the local tax authority. If not, then? Significant penalties for non-compliance? Question for you to consider: Are there areas of risk and uncertainty from a substance perspective? Are your existing reporting processes relating to tax, finance, treasury and operations compatible with the new requirements? You ll need to collect more and/or different information/data. Can your existing technology systems cope, or will you need to upgrade? Are your three tiers of documentation (i.e. master file, local file and CbCR) reconciled and aligned? How can we work together? Adopting an integrated approach that considers the transparency, substance, coherence, governance, control and technology aspects of the new documentation regime will help in understanding the impact and developing a sound implementation approach. An illustrative time plan is as follows:

1 April 2016 to June 2016 Ensuring a comprehensive understanding of compliance requirements, documentation content and filing responsibilities across geographies in which there are operations Undertaking an impact/readiness assessment (using PwC s CbCR analyser tool ) to identify areas of uncertainty and risk Educating teams on the why, what and how of the new documentation regime 3 Post March 2017 Putting together the applicable and required documentation package (using PwC s Global Coordinated Documentation tools for the master and local files) Ensuring timely filing with prescribed authorities 4 Increasing alignment and interface among businesses, geographies and functions Monitoring enforcement of BEPS actions in jurisdictions in which there are operations Keeping a tab on related regulatory and tax developments Ongoing Regular training and updates for senior management on BEPS and related developments July 2016 to March 2017 Strategic considerations Reviewing operational structures and inter-company transaction flows from a value creation standpoint (using PwC s Value Chain Analysis offering) Devising action plans to address identified risks and uncertainties Reviewing advance pricing agreement (APA) options in specific countries to ensure certainty Drawing a complete picture of existing data in various systems and different locations/business units Undertaking a strategic assessment of data-related processes and controls Evaluating current technology and systems readiness to assess data gathering, reconciliation and reporting capabilities Execution aspects Ensuring a TP policy consistent with value creation Aligning websites/other public information with the TP policy Assigning roles and responsibilities for managing and controlling CbCR data Designing and implementing governance standards and internal controls to ensure data accuracy and reliability Upgrading technology capabilities by introducing workflow tracking, automated data extraction and integrated accounting system reporting Applying for APAs where required 2

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