Base Erosion Profit Shifting (“BEPS”)

The Organization for Economic Cooperation and Development (OECD) launched an Action Plan on Base Erosion and Profit Shifting (BEPS) in July 2013, at the request of G20 finance ministers. Since then, the OECD has released several reports and recommendations aimed at implementing new international tax standards to prevent BEPS, where corporations shift profits to low-tax jurisdictions to avoid paying taxes.

India has been an active participant in the BEPS project, working with the OECD and G20 member countries to implement changes in domestic law to ensure adherence to BEPS recommendations. India has already introduced several measures to counter BEPS, including country-by-country reporting and limitations on interest deductions.

Recently, the Indian government introduced a new "equalization levy" on non-resident e-commerce companies, in line with BEPS recommendations on digital taxation. The levy applies to non-residents who have a significant economic presence in India but may not have a permanent establishment in the country.

India's commitment to implementing BEPS recommendations demonstrates its efforts to prevent tax evasion and promote transparency in tax affairs, which is crucial for economic growth and development.

Our Offerings

We can assist in determining the overall strategy of the MNE group in light of the BEPS provisions and assist with the new compliance requirements arising as a result of such projects
In addition, we can also assist in analysing various intangibles and determine whether group members contributing towards the development, enhancement, maintenance, protection and exploitation of intangibles are being remunerated appropriately in line with the Significant People’s Functions (SPFs) being performed
Further, we can also assist in performing a diagnostic review to evaluate the company’s readiness and preparedness in respect of TP compliance obligations and equip the group to meet the documentation deadlines and help ensure that there is alignment between the local and global documentation

BEPS - TP action points

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Intangibles

Based on the BEPS recommendations, an in-depth scrutiny by the tax authorities worldwide is likely on transactions involving intangibles. Tax authorities are likely to draw inference and support from OECD/BEPS guidelines in determining the return from intangibles. It is therefore essential to analyse how the various Intellectual Property Rights (IPRs), brands, etc. are positioned and whether all group members contributing towards the development, enhancement, maintenance, and the protection and exploitation of intangibles, are being remunerated appropriately. and also for determining :

Location of IPRs vs place of conceptualisation and development of such IPRs
Legal ownership vs beneficial ownership of intangibles and related payments.

Three tier TP Documentation including a Country-by-Country (CbyC) reporting One of the most important action plans pertaining to transparency is the three-tier TP documentation structure recommended by the OECD for MNEs resident in member and G20 countries.

The three-tier documentation structure:

Applies to all MNEs whose ultimate parent is a resident of OECD/G8/G20 countries
Requires providing an overview of the MNE’s global value chain
Identifies if revenues and profits generated in all jurisdictions are commensurate with substance
Detects artificial shifting of substantial amounts of income into tax-advantageous environments by an automatic exchange of information between the tax authorities
Recognizes where groups are located in tax havens or enjoy tax incentives
Provides transparency on the authenticity of functions, assets and risks of MNEs’ operations.

Business people meeting to discuss the situation on the market

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Each MNE having intercompany transactions with their group companies would be required to prepare :

Master file to provide the MNE’s blueprint
Local file to provide material TP positions of the local entity/taxpayer with its foreign affiliates; and
CbyC Report to provide jurisdiction-wise information.

OECD has released detailed implementation guidelines which India is expected to adopt. It is therefore necessary for the relevant groups/companies to realign their functions and pricing strategies to ensure that profit/income is allocated in accordance with the value creation in each jurisdiction. Companies operating in India, especially Indian headquartered companies need to tie up the functional analysis of their Indian operations vis-à-vis their global operations.

GTPS’s teams across jurisdictions can help you:

Conduct knowledge sharing sessions to increase awareness on the requirements of the three-tier TP documentation structure and identify new compliance requirements
Perform a diagnostic review to assist you to evaluate your readiness and preparedness in respect of TP compliance obligations
Analyse intangibles in light of BEPS guidance and determine whether all group members contributing towards the development, enhancement, maintenance, protection and exploitation of intangibles, are being remunerated appropriately
Develop processes and procedures for compliance and equip the group to meet the documentation deadlines and ensure that there is an alignment between the local and global documentation