16th
October, 2017
Mr.
Sushil Chandra, Chairman
Central
Board of Direct Taxes,
North
Block,
New Delhi
Representation
in respect of Draft Rules 10DA & 10DB
1. Deferment of the implementation of the Proposed Rules by 1 year
There
are many tax jurisdictions (e.g. USA) which are yet to notify regulatory
provisions to compile the documents i.e. Master file, Country by Country Report
[CbCR] etc., as suggested in the BEPS Action Plan 13.
Suggestion:
In view of
this, it would be difficult to obtain required information and documents for
the Constituent Entity [CE] resident in India. Therefore, the implementation of
the rules 10DA and 10DB should be deferred by at least one year.
Alternatively, CEs resident
in India whose parent entity is situated in a jurisdiction where CbCR is
presently not applicable, be exempted from the onerous responsibility of
compiling and submitting global data pertaining to international group. In such
cases, the submission of the report may be restricted to only Indian
operations.
2. Applicability of the Rule 10DA and Form 3CEBA (Master File) only to
CE Resident in India
Section
286(1) refers to ‘every constituent entity resident in India’, whereas draft
rule 10DA (1) refers to ‘every person being constituent entity of an
international group’. In the draft rule there is no reference to CE resident in
India. This is likely to create unwarranted and avoidable confusion and issues.
Suggestion:
It is
therefore suggested that it should be clearly provided in Rule 10DA that the
provisions relating to Master file are applicable only to resident CE in the
scheme of the notification.
3. Exclusion of the Capital Account Transactions
For
the purposes applicability of the Master file, rule 10DA(1)(ii) provides that
‘the aggregate value of international transaction’ during the reporting year,
as per the books of accounts, exceeds fifty crore rupees, or in respect of
purchase, sale, transfer, lease or use of intangible property during the
reporting year, as per the books of accounts, exceeds ten crore rupees.
For
the purpose of calculating the threshold of “aggregate value of international
transaction”, the notification does not exclude capital account transactions
(such as issue of shares, advances, trade receivables, etc.).
It
is important to note that Rule 10DA(1)(i) as well as rule 10DB(6), both for the
purposes of calculation of threshold limits, consider consolidated group
revenue whereas the definition of the ‘international transaction’ in section
92B includes capital account transaction such as issue of shares, loans, trade
receivable etc. The intention of the BEPS Action Plan 13 seems to set the
threshold limit based on the gross revenue i.e. current account transactions
only (i.e. transactions which have impact on statement of profit and loss).
Suggestion:
It is
therefore suggested that the Capital Account Transactions should be excluded
while calculating the threshold of “aggregate value of international
transaction” for the purposes of applicability of master file provisions.
4. Threshold limit on the applicability of the master file provisions
Rule 10DA(1)(i) for the
purposes of master file provisions provides a limit of Rs. 500 crores of the
consolidated revenue of the international group. For the purposes of country by
country reporting, rule 10DB(6) provides threshold of total consolidated group
revenue of the international group of Rs. 5,500 crore.
Suggestion:
Considering
the onerous requirement for maintaining master file and other documents, the
threshold limit for the first five years should be kept at a higher level i.e.
say 50% of the threshold of CbC Reporting amounting to Rs. 2,750 crore. The
limit can further be reviewed and reduced, if necessary, based on the
experience gained.
Consequently,
the threshold prescribed in Rule 10DA(1)(ii) pertaining to the aggregate value
of international transactions (other than intangible properties) should be
increased to Rs. 500 crore from the proposed limit of Rs. 50 crore. The
threshold for transactions pertaining to intangible property should be
increased to 100 crore from the proposed limit of Rs. 10 crore.
5. Due date for furnishing CbC Report
The Form 3CEBC requires to
compile data from multiple tax jurisdictions in which the CEs of the MNEs are
operating. This would require considerable amount of time and efforts.
Suggestion:
Therefore,
it is suggested that the due date for furnishing CbC Report (Form 3CEBC) should
be extended from 30th November 2017 to 31st March 2018,
in line with due date for furnishing Master file.
6. Definition of MNE group
In the Indian Income-tax
Act, there is no definition of ‘MNE group’ as stated in Form 3CEBC and thus,
the same needs to be changed in line with the Act i.e. the definition of
‘international group’ provided in section 286(9).
7. Amendment in the headings of Forms 3CEBB and 3CEBE
The heading in both Forms
3CEBB and 3CEBE states the term “non-resident international group” which words
are absent in the Act, and thus, heading in both Forms requires to be amended.
8. Methodology to be adopted for preserving the sanctity and
confidentiality of the information
Both the Master File and
CbC Report and the relevant Forms mandates submission of many confidential data, information and documents which, if leaked, can create havoc with the
business operations of the relevant international group.
The notification is
completely silent on the methodology to be adopted for preserving the sanctity
and confidentiality of the information shared by the international group.
Suggestion:
Therefore, it is suggested
that in line with best international practices, proper systems and procedures
should be adopted by the CBDT and the responsibility for such practices should
be properly assigned (including strictest access control with higher
authorities with accountability) and penalty be prescribed for non-adherence to
the strict protocol of confidentiality.
9. Additional requirements for Master File
Action 13 report of the
OECD provides the requirements for Master File. While the Indian Government has
largely adopted the format provided by OECD, the draft Indian Rules contain
certain additional requirements as mentioned below:
– List of all the operating entities of the
international group along with their addresses – This information does not
form part of Action 13 report.
– The functions, assets and risks
analysis of the constituent entities of the international group that contribute
at least ten per cent of the revenues, assets and profits of the group; –
The Action 13 report requires a brief functional analysis describing the
principal contributions to value creation by individual entities within a
group.
– List of all the entities of the
international group engaged in development of intangibles and in management of
intangibles along with their addresses. The Action 13 report requires a
general description of the location of principal research and development
facilities and location of management.
– Detailed description of the financing
arrangements of the international group, including the names and addresses of
the top ten unrelated lenders. Action 13 report requires a general
description of the group financing activities.
– In a number of instances, the draft
rules require a “detailed description” instead of a “general description” as
mentioned in Action 13 report.
Suggestion:
Most countries have adopted
the format as provided by the OECD. It is requested that the format of Master
File be in sync with the format as provided by OECD. The additional
requirements will create certain inconsistencies for the MNC group since the
group will have to prepare different versions of the Master File for different
countries.
For Bombay Chartered Accountants’ Society,
Narayan R. Pasari Mayur Nayak
President Chairman,
International Taxation Committee
