THE Indian Income Tax Authorities have always solicited for disclosure of global supply chain profits to assess the reasonableness of cross-border inter-company transaction prices. And in continous support of such transparancy & accountability agenda, India had always been in the forefront of the implementation of the conclusions of the OECD report. With this agenda in mind, India's Former Finance Minister Mr. Arun Jaitley has proposed that an international group with its ultimate parent resident in India is required to file a CbC report in the prescribed format prior to the due date of filing tax returns. In case of an international group that has its ultimate parent resident outside India, an Indian entity that is a member of the group would need to comply with the requirement of filing a CbC report in India. Against that background, the Report on Action 13, released in September 2014, provides a template for Multinational Enterprises (MNEs) to report for each tax jurisdiction in which they do business the information set out in the template. This report, which needs to be filed annually, is called the Country-by-Country (CbC) Report.

While CbC reporting is the primary responsibility of the ultimate parent of an MNE group, there are circumstances under which an entity that is resident in India; but not the ultimate parent could also be required to comply with CbC reporting in India. This secondary filing trigger could arise if the country where the ultimate parent is based does not implement CbC reporting requirements or if India does not have satisfactory mechanism for exchange of CbC reports with that country. Though this step seems to be a big push toward greater transparency and information exchange, however, this may increase the compliance burden of taxpayers.

Now, as per the existing provision of Section 286, every parent entity or the alternate reporting entity, resident in India, shall, for every reporting accounting year, in respect of the international group of which it is a constituent, furnish a report, to the prescribed authority within a period of twelve months from the end of the said reporting accounting year, in the form and manner as may be prescribed. Several concerns have been expressed that in case of an alternate reporting entity (ARE) resident in India whose ultimate parent entity is not resident in India, the accounting year would always be the accounting year applicable in the country where such ultimate parent entity is resident and cannot be the previous year of the entity resident in India. Accordingly, it has been requested that this unintended anomaly as regards the interpretation of accounting year in case of ARE, resident in India may be removed.

In order to address such concerns and to bring clarity in law, it is proposed to suitably amend section 286 so as to provide that the accounting year in case of the ARE of an international group, the parent entity of which is not resident in India, the reporting accounting year shall be the one applicable to such parent entity. Further, the time allowed for furnishing the Country-by-Country Report (CbCR), in the case of parent entity or Alternative Reporting Entity (ARE), resident in India, has been extended to 12 months from the end of reporting accounting year. This amendment is clarificatory in nature and will take effect retrospectively from the 1st April, 2017.