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    Country By Country Reporting – Implementation Guidance:

     

    Currently, CBCR compliances has become a matter of concern for all multinational enterprises (MNE). The Organization for Economic Cooperation and Development (OECD) as part of the BEPS project has been issuing guidance to the action points specified by it. Recently on 6 April 2017, the OECD released an updated version of the Guidance on the Implementation of Country-by-Country Reporting (‘the Guidance’) which has addressed five new issues:

     

    • The definition of terms “related party revenues” & “revenue” used in the CbCR;
    • The definition of total consolidated group revenue;
    • The accounting principles for determining the existence of and membership in a group;
    • Treatment of major shareholding; and
    • Transitional filing options for MNE groups.

     

    1. Definition of related party and revenues

     

    The Guidance clarifies that the revenue referred to in Table 1 of CbCR shall include extraordinary income and gains from investment activities. While this may not necessarily reflect just the operating results of the constituent entities, it would at least do away with the ambiguity on what constitutes ‘extraordinary income’ and varying yardsticks that MNE groups would apply.

     

    The Guidance further mentions that “related parties” in Table 1 of CbCR, which are defined as “Associated Enterprises” in the Action 13 report should be interpreted as ‘Constituent Entities’ listed in Table 2 of the CbCR. In the Indian context, this is defined in section 286 of the Income Tax Act 1961 (‘the Act’) largely aligned to the OECD definition in the Action 13 report which includes permanent establishments and does not give any leeway in terms of materiality of a company in terms of the group size.

     

    1. Definition of the total consolidated group revenue

     

    The Guidance clarifies that for determining the total consolidated group revenue (to see if the threshold of EUR 750 million is breached by a MNE group), all of the revenue reflected in the consolidated financial statements should be used. Further, in line with the definition of revenues for Table 1, the Guidance also provides that the jurisdictions are allowed to require inclusion of extraordinary income and gains from investment activities in the total consolidated group revenue if such inclusion is called for under the applicable accounting rules.

     

    The applicable accounting standard therefore could either push companies into the realms of CbCR or save it from having to comply with CbCR filing.

    Country By Country Reporting – Implementation Guidance:

     

    Currently, CBCR compliances has become a matter of concern for all multinational enterprises (MNE). The Organization for Economic Cooperation and Development (OECD) as part of the BEPS project has been issuing guidance to the action points specified by it. Recently on 6 April 2017, the OECD released an updated version of the Guidance on the Implementation of Country-by-Country Reporting (‘the Guidance’) which has addressed five new issues:

     

    • The definition of terms “related party revenues” & “revenue” used in the CbCR;
    • The definition of total consolidated group revenue;
    • The accounting principles for determining the existence of and membership in a group;
    • Treatment of major shareholding; and
    • Transitional filing options for MNE groups.

     

    1. Definition of related party and revenues

     

    The Guidance clarifies that the revenue referred to in Table 1 of CbCR shall include extraordinary income and gains from investment activities. While this may not necessarily reflect just the operating results of the constituent entities, it would at least do away with the ambiguity on what constitutes ‘extraordinary income’ and varying yardsticks that MNE groups would apply.

     

    The Guidance further mentions that “related parties” in Table 1 of CbCR, which are defined as “Associated Enterprises” in the Action 13 report should be interpreted as ‘Constituent Entities’ listed in Table 2 of the CbCR. In the Indian context, this is defined in section 286 of the Income Tax Act 1961 (‘the Act’) largely aligned to the OECD definition in the Action 13 report which includes permanent establishments and does not give any leeway in terms of materiality of a company in terms of the group size.

     

    1. Definition of the total consolidated group revenue

     

    The Guidance clarifies that for determining the total consolidated group revenue (to see if the threshold of EUR 750 million is breached by a MNE group), all of the revenue reflected in the consolidated financial statements should be used. Further, in line with the definition of revenues for Table 1, the Guidance also provides that the jurisdictions are allowed to require inclusion of extraordinary income and gains from investment activities in the total consolidated group revenue if such inclusion is called for under the applicable accounting rules.

     

    The applicable accounting standard therefore could either push companies into the realms of CbCR or save it from having to comply with CbCR filing.

     

    The Guidance also specifically recognizes that in the case of financial entities, gross amounts from transactions may not be recorded in their financial statements, the item(s) considered similar to revenue under the applicable rules should be used in the context of financial activities. The Guidance captures a specific example of interest rate swap wherein revenue is reported on a net basis and the same is what would be used to determine the total consolidated group revenue.

     

            3. Accounting principles/ standards for determining the existence of and membership of group

    For the purpose of determining the constituent entities of a group, the Guidance recommends companies having their shares listed in a public stock exchange to follow the consolidation rules in the accounting standards already used by the group. For other companies, the OECD has provided an option to either use local GAAP of the jurisdiction of the ultimate parent entity or IFRS unless the jurisdiction of the ultimate parent entity mandates the use of a particular accounting standard.

     

    The choice of a particular accounting standard becomes important in terms of the following;

     

    • Which entity/ group would an entity be considered as part of for determining the group revenue.

     

    • Whether an investment fund company would be required to consolidate its financial statements.

     

    1. Treatment of major shareholding

     

    The Guidance leaves it to the prevailing accounting standard to determine how much of the revenue of the entity is to be included in the groups consolidated financials where minority interest exists. A pro-rata basis or 100 % of the entities revenues could be used for the revenue threshold reporting revenues in the relevant Tables.

     

    1. Transitional filing options for MNEs

     

    OECD recommends that countries implement CbCR for periods commencing January 2016 for which the last day of filing the CbCR is 12 months from the end of the fiscal year (‘Applicable Deadline’). For countries that are not aligned with these dates, transitional issue arises. To overcome this, jurisdictions may accommodate voluntary filing of CbCR in their jurisdiction of tax residence (‘parent surrogate filing’). The Guidance also lists out countries which have already enabled the parent surrogate filing for fiscal periods commencing on or after 1 January 2016 in their jurisdictions which inter alia include countries such as China, United States of America (‘US’) and Japan.

     

    The Guidance also provides that, inter alia, where the CbCR filing has been undertaken by the ultimate parent entity (‘UPE’) or surrogate parent entity (‘SPE’) resident in a particular jurisdiction before the Applicable Deadline, and there exists a qualifying competent authority agreement between UPE/ SPE tax jurisdiction and that of the constituent entities’ tax jurisdiction, then there ought to be no filing obligations in the constituent entities’ jurisdiction.

     

    An issue that Indian MNE Groups may have to immediately grapple with is what happens with respect to constituent entities resident of tax jurisdictions which are yet to sign the MCAA but have CbCR filing obligations which fall before the Indian filing deadline of 30 November 2017 (one such example could be China).

     

    Updated -UN TP Manual:

    On 7 April, 2017, United Nations (UN) has published updated TP Manual that contains new chapters on intra-group services, cost contribution arrangements and on the treatment of intangibles; the updated UN TP manual incorporates developments relating to Base Erosion and Profit Shifting (BEPS) project including revised guidance on documentation and business restructuring. The updated version has been divided into 4 parts for better clarity –

     

    1. Transfer pricing in a global environment,
    2. Substantive guidance on arm’s length principle,
    3. Practical implementation of TP regime and
    4. Country practices;

     

    The following are the new chapters that are incorporated as part of the updated UN TP Manual:

     

    Intra-group services

     

    The chapter is based on the rationale that if specific group members do not need the activity and would not be willing to pay for it if they were independent, the activity cannot justify a payment, and further, any incidental benefit gained solely by being a member of an MNE group, without any specific services provided or performed, should be ignored.

     

    The concept of benefit test is explained under various situation such as services are provided to meet specific need of AE and when centralized services are provided along with examples. The Chapter states the 4 situations where charge is not justified as benefit test is not met viz. shareholder activities, duplication of services, benefit arising only out of passive association with MNE group and incidental benefit giving appropriate examples.

     

    The chapter also elaborates upon various method to determine arm's length price, direct and indirect charge mechanism and allocation keys. The Chapter provides for 2 safe harbour mechanisms for low value services and minor intra-group expenses.

     

    Cost contribution arrangements

     

    The Chapter covers issues such as value of CCA contributions, treatment of government subsidies, predicting expected benefits, CCA entry, withdrawal and termination and CCA guidelines and

     

    Key Topics Covered:

    • AUDIT
    • MISCELLANOUS
    • INCOME TAX
    • DEBT & EQUITY ADVISORY

    Updates

    • COMPANIES ACT, 2013

    Key Topics Covered:

    • FEMA
    • INCOME TAX
    • COMPANIES ACT, 2013
    • GST
    • AUDIT
    • LABOUR LAWS

    In Industrial and Commercial Organisations, it is the normal practice that the new employees are taken on probation. The probationary period may range between six months to two years depending on the nature of the role and responsibilities. During the probationary period a new employee performance and behaviour is required to be monitored and provide close supervision and coaching, guidance and training, either to learn a new job or to turn around a performance problem. The period is also required to be utilised to make the new employee to understand and integrate with the culture of the organisation besides systems and processes of working. The intent and object of such probationary period is rarely utilised by the organisations.

     

    The other purpose of probationary period is to suspend or modify the usual employment rules for an employee and to understand and assess his or her on the job competencies, potential, behaviour patterns and commitment to the organisation and its objectives.

     

    The implied promise or threat of a probationary period is that the employee will have to utilise the opportunity and perform to best of his abilities and if the employee fails to do so, he may not be considered for permanent employment and lose his employment at the end of probation or during the period of the probation.

     

    To achieve the real objectives of the probationary period organisations may practice the below mentioned policies.

     

    • Notify the employee the probationary period, the intent and consequences.
    • Conduct periodic reviews with the employee to provide feedback and counselling.

     

    • If the employee is having performance issues, detailed guidance may be provided on how the employee can improve—and offer training, if necessary.

     

    • Assign a knowledgeable and experienced mentor to advise the employee.
    • Treat the employee fairly and consistently.

     

    • If an employee can’t do the job or improve performance, clearly document everything ie. employee’s performance, your efforts to coach and manage, training provided and so on.

     

    The model standing orders provided in the Industrial Employment Standing Order Act has defined probationer as a workman who is provisionally employed to fill a permanent vacancy in a post and has not completed three months service therein. If a permanent employee is employed as a probationer in a new post he may, at any time during the probationary period of three months, be reverted to his previous permanent post.

     

    Model standing orders are the guiding principles to the employer for finalisation of its own standing orders and certification of the same. When once the company standing orders are certified, the probationary period mentioned therein will be applicable. The three months mentioned therein is only indicative and not necessary applicable to all organisations.

    The employer normally incorporates the period of probation and terms of extension of the same in the appointment order. If there is any conflict between the certified standing orders and the appointment order, the provisions contained in the certified standing orders shall prevail.

     

    Most of the employees and also some of the employers believe that if no action is taken at the end of the probationary period and the employee is continued in the employment, it is deemed confirmation. It is not true. It will become deemed confirmation only if the rules of the company or the appointment order or the standing orders specifically incorporates such provision. The Constitution Bench in the matter of Sukhbans Singh V. State of Punjab and also in the matter of G S Ramaswamy and Ors v. Inspector-General of Police, Mysore has opined that a probationer cannot, after the expiry of the probationary period, automatically acquire the status of a permanent member of the service, unless of course, the rules under which he is appointed expressly provide for such a result.

     

    Therefore even though a probationer may have continued to act in the post to which he is on probation for more than the initial period of probation, he cannot become a permanent servant merely because of efflux of time, unless the Rules of service which govern him specifically lay down that the probationer will; be automatically confirmed after the initial period of probation is over.

     

    If provided in the appointment order, the services of the probationer can be terminated at the end of the probationary period or during the course of the probationary period without conducting an enquiry in accordance with the terms of employment. The Honble Punjab & Haryana HC in the matter of Jitender Kumar VS. P O, Industrial Tribunal-cum-Labour Court, Gurgaon [2014 LLR 985] confirmed this view and the facts of the matter are as under:

     

    The workman was appointed initially on 12.01.2001, on probation for a period of six months after two years of training. As per the appointment order the probationary period is liable to be extended at the sole discretion of the Management and workman is deemed to be on probation unless confirmed in writing. In accordance with the terms of appointment order the probationary period was extended for 3 months on 12.07.2001 till 11.10.2001, after advising him to be more careful in future by considering his appraisal report and asked him to improve his work and conduct. On 09.10.2001 that is just before completion of the extended probationary period the Management discharged the workman by holding that his work and conduct was not found upto the expectation of the Management. Compensation and notice pay, along with the letter of termination of service was also sent to him and the discharge was after the Management had reviewed the working of the probationers on 08.10.2001 wherein it was noticed that the probationer was remaining absent, adversely affecting the working of the Company, doing illegal activities at the gate of the Company and affecting the industrial peace of the Company.

     

    The court held, the Management is within its right to discharge the workman from his services in view of his conduct during period of probation since the main object of appointment of a person on probation is to enable the employer to assess his suitability in the establishment during the probation period and afterwards. Hence, no regular enquiry is required in such matter since the termination is neither stigmatic nor against the conditions of employment.

    In another matter [DM, Rajasthan State Road Transport Corporation Vs. Kamruddin 2009 LLR 945] Supreme Court opined that dismissal of a probationer, for unsatisfactory work, will not be interfered by the courts.

     

    The HR function has to take up the responsibility of monitoring, guiding, counselling and assisting the probationers to cope up with the work requirements and also document the deficiencies, if any, found during the probationary period so as to enable the management to take an appropriate decision on the probationary workmen. If this is not done, the purpose for which the probationary period has been created will be defeated.

    What is SUPPLY CHAIN Management..?

     

    All activities associated with the flow and transformation of goods from the raw materials stage, through to end users, as well as the associated information inflows. This includes material and information flows both up and down supply chain. Therefore supply chain includes a whole horde of systems such as systems management, operations and assembly, purchasing, production schedule, order processing, inventory management, transportation, warehousing, and customer service.

     

    In today’s changing business environment, there is an increased focus on delivering value to the customer at the cheapest possible costs. Hence there has been increased interest in logistics and supply chain management practices since performance is not only determined by actions and decision, but also the improvements on return on investment and greater profitability.

     

    Hotel companies, both big and small, must focus on how to offer products and services while keeping costs low. In an industry which is labor intensive many hotels are forced to make bolder and more visible moves in costs reduction to their operations. It comes as no surprise that much of these costs cutting efforts have been focused on payroll and other employee associated costs, like hiring freezes, cuts in employee perks, reduction of bonuses, and reductions in salaries.

     

    One area of the hotel industry that is usually left out in cost cutting efforts is its logistics and supply chain operations. Even though logistics and supply chain is considered an operations management strategy in the hotel and other service industries, they can use these strategies to help add value to their properties. The supply chain is an important element within the hotel and catering industry.

     

    A well-established logistics and supply chain management system can help the hotel industry give individual hotel companies a sustainable competitive advantage. The use of the right logistics and supply chain strategies helps not to only improve the quality and service of the hotel company, but drive down costs. For staff in this industry, it is crucial to build steady relationships with suppliers and work with a good ordering system in order to improve the service level towards customers.

     

    The hotel industry can benefit from the comprehensive and integrated practices of logistics and supply chain management, by delivering a consistently reliable and high quality service at the best costs.

     

    Challenges in the Supply Chain in the hotel industry

     

    The purchase manager is always under constant pressure to meet the user departments’ un- planned needs. As a result the purchase manager always tries to have huge buffer stocks, lest he should fall short of satisfying the hotel operating/user departments. But this does not mean that quality management processes should be totally ignored.

    Material Cost: A hotel store deals with huge quantities of the items with very less price. Bulk of the direct material cost is invested in such items. Majority of the consumables of the hotel are of perishable nature due to which one cannot make use of the economies of bulk purchase. This increases the Number of transactions and thereby the transaction costs. This results in increased transaction costs.

     

    Material Ordering Costs: The individual departments normally use manual indents and purchase requisitions independently. In many properties the hotels do not have computerized indenting and purchase requisitions. The consolidation of such indents and requisitions become quite time consuming. The purchase Department is found to place individual orders for same products, due to difficulty in consolidation Even for chain properties where different units are located in the same city, the hotels do not take advantage of bulk purchasing due to the above reasons.

     

    Inventory Holding Costs: The purchase department, in the fear of not being able to give the right items to the user departments on time, stock large quantities of materials. This occupies a large space and there by leads to increase in costs.

     

    Emergency purchase: The purchases are made on the request to the user departments on the spur of the moment, and are regularized later by making the required paper work. Due to lack of planning, emergency purchases are a matter of routine and not due to exception.

     

    Factors affecting supply chain management in Hotel Industry

     

    It is essential to understand that the premise under which the hospitality industry operates is much different from other industries. The industries capital costs are high, operating costs being comparatively lower. The hotel industry has its unique characteristics, like customer centricity, different types of management etc.

     

    • Guest or Customers are the utmost important for the hotel industry; customer satisfaction is of paramount importance to the hotel industry. In the hospitality industry the customer related activities such as food and beverage production and service, housekeeping, Front office management are given utmost importance. The back office operations such as the accounts, purchases, supplies chain management, revenue recording etc. take a back seat.

     

    • Different types of management systems, such as the ownership hotels, franchisees, hotels which are run on operating contracts by chains etc. The different managements systems have different implications on the supply chain management.

     

     

    • In the hotel industry all the efforts are customer oriented as a result lot of cost reduction which can be attained through improved upstream functions of supply chain management is lost. Current trends in the industry show that computerized property management systems are used but mainly for front office management and reservation systems.

     

    Benefits of Supply Chain Management

     

    • The supplier and the hotel benefit from a well-established system of supply chain management. The relationship between the supplier and hotel becomes stronger because of professional management in the form of development of proper purchasing policies. This could also lead to concentrating on a few trusted suppliers, rather than have a large and inefficient supplier base. Newer and more efficient suppliers could be identified, leading to increased efficiency.
    • Itleads to significant reduction in costs and also helps continuous evaluation and improvement in the buying process. It could increase the product range or perhaps reduce it too, because of intensive market research undertaken.
    • Improved management information to future requirements

    SCM – Strategic methods explained

     

    Supplier Identification: Generally supplier base is huge in the hotel industry, this has its positives, conscious steps should be taken to identify committed suppliers who are willing to go by the objectives of the Organisation, and be involved and appreciate and support the changes of the organizational requirements.

     

    Supplier evaluation and selection: Supplier evaluation is a critical process, suppliers ability to supply the right goods at the right time with correct specifications has to be reviewed. Contracts are awarded after careful negotiations with the supplier.

     

    Supplier management : After the suppliers fulfills its obligation by delivering the required goods as per specifications it’s the responsibility of the Purchase department to ensure suppliers bills are paid promptly , at times good suppliers are lost due to the payment delays. Therefore its very essential to maintain a strong relationship with the supplier hence supplier management has to be strengthened.

     

    Supplier development and improvement: It’s a very crucial step in the supplier chain management. A careful consideration of this process would contribute towards efficiency and cost saving.

     

    Conclusion:

     

    Professional supply chain management ensures every supplier is committed for top quality product and service standards. An efficient supply chain management helps in significant cost reduction by developing and implement contracts and agreements with suppliers of hospitality products and services, securing for the hotels competitive prices be if for food and beverage, rooms or property operations

     

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