- Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.
Country-by-country (CbC) reports
What to study?
For Prelims and Mains: What are CbC reports- brief background, need and their significance.
Context: India and the United States have signed an Inter-Governmental Agreement for Exchange of Country-by-Country (CbC) Reports.
- The objective is to ensure that all tax authorities have access to the same information about an MNC’s value chain and the resulting tax consequences.
- This Agreement for Exchange of CbC Reports, along with the Bilateral Competent Authority Arrangement, will enable the countries to automatically exchange CbC Reports filed by the parent entities of Multinational Enterprises (MNEs) in the respective jurisdictions with effect from January 1, 2016.
- It would also obviate the need for Indian subsidiary companies of US MNEs to do local filing of the CbC Reports, thereby reducing the compliance burden.
- India has already signed the Multilateral Competent Authority Agreement (MCAA) for Exchange of CbC Reports, which has enabled exchange of CbC Reports with 62 jurisdictions.
Provisions wrt CbC reports:
- The Income Tax Act requires Indian subsidiaries of multinational companies to provide details of key financial statements from other jurisdictions where they operate. This provides the IT department with better operational view of such companies, primarily with regards to revenue and income tax paid.
- The provision was a part of the base erosion and profit shifting action plan, and later incorporated in IT Act also.
What is a Country-by-Country (CbC) Report?
The Base Erosion and Profit Shifting (BEPS) Action 13 report (Transfer Pricing Documentation and Country-by-Country Reporting) provides a template for multinational enterprises (MNEs) to report annually and for each tax jurisdiction in which they do business the information set out therein. This report is called the Country-by-Country (CbC) Report.
- A Country-by-Country (CbC) Report contains aggregated country-by-country information relating to the global allocation of income, the taxes paid, and certain other indicators of a multi-national company.
- It also contains a list of all the constituent entities of the multi-national company operating in a particular jurisdiction and the nature of the main business activity of each constituent entity. This information enables an enhanced level of assessment of tax risk by both tax administrations.