MNC to share details about their global operations in India

DAINIK NATION BUREAU

Fearing trouble from global tax authorities, MNCs are apprehensive about sharing details, which has been sought by Indian taxmen under the country by country (CbC) reporting norms.

While no one is saying it aloud, some multinationals are looking to either sidestep some of the questions or submit convoluted answers, because they fear that their tax structures once submitted in India will become publicly known and could lead to to backlash from already assertive American or European tax authorities, people in the know told ET.

Central Board of Direct Taxes (CBDT) made it mandatory for large multinationals to furnish CbC report and maintain a Master File in November last year in keeping with India’s commitment to implement Base Erosion and Profit Shifting (BEPS) guidelines adopted by Organisation for Economic Cooperation and Development (OECD).

Multinationals like Google, Facebook, Samsung and Apple would now be required to submit details about their global operations in India. Requirements under Master File rules mandate that multinationals must submit information like top ten lenders, top ten debtors, intellectual property held in each location and financials of each subsidiary that contributes more than 10% to global revenue or profits.

Industry insiders say most multinationals are spooked about sharing such details concerned about their likely international ramifications. Insiders point out that apart from confidentiality the fear is also that some companies have not yet submitted similar information in other countries. “Whatever they submit in India, multinationals will have to maintain that in every country,” said a legal expert advising few multinationals in India.

“There are major restructuring on going as we speak, so this could create problems,” the person told ET. According to tax experts, the exercise may lead to increase in transfer pricing tax demands, not just from India but also from other countries.

Also, some multinationals, especially those in technology and pharmaceuticals sectors, are worried about the confidentiality of sharing important data such as their intellectual properties.

“We are currently taking a legal opinion as to whether not sharing such details would have any implication. If leaked such data could provide advantage to our competitors,” said the CFO of a major new world technology company.

Different multinationals are taking different approaches to tackle the situation, said people in the know.

Some companies from Korea and Japan are refusing to divulge these details altogether. Some of the biggest American multinationals are submitting just one line reply to these questions: “Not applicable as neither profits nor revenues from India are more than 10%”, they said.

“While most multinationals are apprehensive sharing more details to Indian tax authorities, few would want to sidestep these questions,” said Ajay Rotti, partner at tax advisory firm Dhruva Advisors. “This is mainly because no group would want to be seen as dodging information to the tax authorities, although there are a lot of issues especially around confidentiality of information,” he said.

Some experts point out that while there are concerns about specific regulations in India, most other countries including China, too, are demanding similar information, and that a government
clarification could settle the issue.  “The current provisions create some challenges for local entities where the agreement has not been signed between the two countries. A FAQ by CBDT on how to harmonize the OECD objective and the Indian rules will be highly appreciated,” said Sanjay Tolia – AsiaPac TP Leader for PwC.

Some others, however, said India demands more details than what OECD guidelines call for. For instance, India requires a “detailed” description of the financing arrangements of the international
group, including the names and addresses of the top ten unrelated lenders, while the OECD requires only “general description”, a senior tax advisor said.

“Detailed and general are very subjective and multinationals are taking positions as to what is general and what is detailed and submitting replies accordingly,” the person told ET.

“Many multinationals are trying to compile the requisite data, but are finding it very burdensome,” said Vijay Iyer, national leader, transfer pricing, at EY India. “To create additional data merely for
an Indian compliance is proving to be onerous and most of the times such data may not have any relevance to the transfer pricing of the Indian taxpayer,” he said.

NB–ET