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    TP Updates 2018

    1. Amendment in Computation Mechanism of Secondary adjustment F. No. 370142/12/2017-TPLdated 19thJune, 2018 

    Background - Rule 10CB of the Income-tax Rules, 1962 (‘the Rules’) was inserted vide Notification No. GSR 590(E) dated 15th June, 2017. Under sub-rule (1) of the said rule 10CB, a uniform time limit of 90 days, starting from different dates, is prescribed for repatriation of excess money. This is done in order to provide uniform treatment in respect of the different types/situations of primary adjustments specified under sub-section (1) of section 92CE.

    The CBDT has clarified the computation mechanism (the date from which the interest has to be calculated) in scenarios where APA (advance Pricing Agreement) and MAP (Mutual Agreement Procedure) are in place and there are requirements of repatriation of the excess TP adjustments accepted over and above the operating revenues or expenditures with the associate enterprises. 

    • APA Cases - from the date on which the APA has been entered into by the assessee under section 92CC, where the primary adjustment to transfer price is determined by such agreement;”
    • MAP Cases - from the date of giving effect by the Assessing Officer under Rule 44H to the resolution arrived at under MAP, where the primary adjustment to transfer price is determined by such resolution, under a Double Taxation Avoidance Agreement entered into under section 90 or 90A.
    1. Appropriate use of CbC Report (Notification No: F. No. 500/13/2016-APA-I dated 27th June, 2018) Introduction to CbC Reporting 

    Base Erosion and Profit Shifting (the BEPS Project) as framed by OECD, along with G20 Countries, is adopted by India. According to Action 13 of the BEPS Project, Country by Country (CbC) Report is to be filed in the jurisdiction of its tax residence by the ultimate parent entity of the International Group while the master file and local file are prepared and submitted by the constituents of the International group in their respective tax jurisdictions.

    Along with the Form 3CEAE which relates to CbC Reporting, Form 3CEAC, 3CEAD and other similar forms that are also required to be filed in India to comply with the three tier documentation and the master file requirements. There are many litigations and concerns regarding the confidentiality of the information and as to how the information furnished in the CbC Report will be used and maintained by the Government. 

    In order to resolve the concerns and litigations, CBDT issued a notification regarding the appropriate use of CbC Report with the following elements:

    Appropriate use of CbC Reporting 

    1. Access to CbC Reports
    2. Once the case of a constituent entity has been selected for scrutiny based on risk assessment, the jurisdictional TPO will have access to the information relating to that constituent entity.
    3. All the Filed and exchanged CbC Reports shall be accessed by Indian competent authority(Joint Secretary, FT & TR-I and Joint Secretary, FT & TR-II in CBDT) and DGRA in accordance with the treaties and Act.
    4. The jurisdictional TPO for which the SOP will be formulated by Centralised Risk Assessment Unit (CRAU) can access the constituent entity information, after being selected for scrutiny based on Risk assessment.

     

    1. Appropriate Use of CbC Reports Information in CbC reports can be used for

     

    1. High Level TP Assessment: Based on potential risks indicated by initial evaluation of CbC Reports, TPOs may undertake further examination of the TP arrangements. For that purpose, a tax audit may be planned and TPO may call for further information. The further probe does not restrict the TPO to be confined to the potential risks identified.

     

    1. Assessment of Other BEPS related Risks: CbC Reports may be used to identify possible BEPS related risks which may not be related to transfer pricing matters.

     

    1. Economic and Statistical Analyses:

     

    1. The information in CbC Reports may be used for economic and statistical analysis for better understanding and identification of features, benefits and risks of the said reports and tax system.

     

    1. The use of CbC Report would be inappropriate if it is used as a substitute to TP analysis based on detailed functional and comparability analysis or it is used as a sole material to propose TP adjustment.

     

    1. Planning a tax audit

     

    1. Making enquiries regarding the Transfer Pricing arrangements made within the group. 
    1. Ensuring Confidentiality of CbC Report

     

    1. Admitting the legal requirement and importance to maintain ‘confidentiality’, the instruction requires the tax officers to strictly follow the detailed guidelines on maintaining confidentiality as provided in Chapter VII of Manual on Exchange of Information.

     

    1. All the CbC Reports filed with DGRA by the reporting/ alternate reporting entity u/s 286(2) or by a constituent entity u/s 286(4) received from other jurisdictions through exchange of information are subject to the requirements of confidentiality under the provisions of the Act.

     

    1. Monitoring, control and supervision of the use of CbC Report

     

    1. In order to prevent misuse of information contained in CbC Report, a monitoring and control mechanism has been put in place wherein prescribed quarterly reports would be submitted to the CBDT. In case there is any breach regarding appropriate use, the Indian tax authorities shall disclose the same to OECD.

     

    1. The adjustments made to income of taxpayer based on inappropriate use of CbC Reports information will be promptly conceded by Competent Authority in MAP proceedings

     

    1. The appropriate use of CbC report would be reviewed by the Board through the quarterly report submitted by the Principal CIT(International Taxation & Transfer Pricing) which is a consolidated report of all the quarterly reports prepared and submitted by CsIT(Transfer Pricing) in the Country.

     

    1. The above mentioned quarterly report should reach the Board within 30 days from the end of each quarter commencing from 1stJanuary, 2019 and this issues u/s 119 of Income Tax Act.

     

    Concluding Remarks

     

    1. During the process of resolving the concerns raised by the tax payers on inappropriate use of information furnished in CbC Report by Competent Authority of India(if not resolved by jurisdictional CIT), litigation may be faced by the tax payer in the interim stage. So, a time frame is to be prescribed for the competent authority to resolve the issues and concerns of the Tax Payer.

     

    1. The intention of this guidance is that the information provided in the CbC report is to be used solely in assessing the various risks involved like risks in TP Arrangements made within the group, other BEPS related risks etc., and to perform Economic and Statistical Analysis. And, such information cannot be used for analyzing the arm’s length nature. But considering the aggressive approach of the tax authorities, it is very interesting to see how this guidance would be implemented in the upcoming TP Audits involving review of CbC and Master File documentations.

     

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