White Paper - Base Erosion and Profit Shifting

The integration of national economies and market has increased substantially in recent years putting a strain on the international taxes, which were devised many years ago. Weaknesses in the current roles create opportunities for Base Erosion and Profit Shifting (‘BEPS’) requiring bold moves by policy makers to restore confidence in the system and ensure that the profits are taxed where economic activities take place and value is created. Accordingly, OECD and G20 countries adopted a 15-point action plan to address BEPS. Recently, G20 along with OECD agreed to implement recommendations of BEPS project.

With a view to align the existing Indian Transfer Pricing regulations pertaining to maintenance of documentation, the Finance Bill, 2016 proposes to adopt Action 13 of the Action Plan on BEPS (‘BEPS Action Plan 13’) for Transfer Pricing Documentation and Country-By-Country (‘CbC’) reporting by introducing an amendment to section 92D and inserting a new section 286 to the Income-tax Act, 1961 (‘the Act’). These provisions will be effective from the Assessment year 2017-18 (financial year commencing 1 April 2016) and subsequent assessment years.

BEPS Action Plan 13 recommends that the countries should adopt a standardized approach (three –tiered structure) to maintaining Transfer Pricing documentation consisting of Master File, Local File and Contry-by-Country report has been mandated.

This White Paper discusses the said documentation and the regulatory framework of the BEPS Action Plan 13.

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