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Is your business ready to respond to BEPS?

Background “We are strongly committed to a global response to cross-border tax avoidance and evasion so that the tax system supports growthenhancing fiscal strategies and economic resilience.� G20*

The OECD has now reported back on all the action areas targeted as part of the base erosion profit shifting (BEPS) initiative. The project is moving toward its finalization and implementation phases, and many significant territories have already begun the process of implementing their domestic responses. Many of the specific actions that make up the BEPS project give rise to tax risks within the operating, holding and financing structures used by Indian multinational enterprises (MNEs). India being part of G20, has been very actively participating in the BEPS discussions, since its inception. The Government of India has expressed strong commitment to initiate action in line with final BEPS recommendations. Some of these recommendations (for example country-by-country reporting) are likely to be introduced in India as early as February 2016.

* news/54199227_1_tax-base-g20-tax-evasion

The world after BEPS External pressures

Relevance to the business model


• OECD BEPS project

• Increased focus on deductibility of:

• Revisit holding cos or hub cos (business alignment, substance, transparency, sustainability and rulings renewal)

• Base protection in source territories • EU responses, e.g., state aid, changes to parentsubsidiary directive • Local territory responses, e.g., (French interest limitation, UK Diverted Profits Tax) • Increased internal focus on risk management and corporate governance • Publicity concerns and media coverage

• Interest • Hybrid debt • Increase in local withholding taxes and gains taxes • Increased transparency focus on Transfer Pricing (TP) documentation • Increased compliance and reporting obligation • Increased focus on permanent establishment • Increased focus on alignment between profits and substance

• TP policy and documentation review and refresh • Permanent establishment risk management policy review and refresh • Rebalance capital structure v. supply chain • Increased use of unilateral and bilateral Advance Pricing Agreements (APAs) • Restructure affected financing structures

Impact of BEPS actions on your business

BEPS is expected to transform the global tax environment in which MNEs operate. The output from the BEPS project is primarily in the form of recommendations for the design of countries’ domestic laws, as well as proposed changes to tax treaties. Response to BEPS will have to be managed in a phased manner and will require proactive and timely planning. Companies will have to build consideration of potential BEPS impact into current tax planning and prepare different scenarios for its application. Implementation of changes will have to be managed through robust program management across various company stakeholders in the entire value chain.

• • • •

Limitation of interest deductions for debt funding Impact on various financial instruments Rebalance of capital structure v. supply chain

Hybrid Mismatch

BEPS Business Impact

Re-examine the approach toward dispute resolution Increase in disputes post BEPS reforms Greater use of Mutual Agreement Proceedings

• •

• •

Consider transfer pricing for intangibles Consider transfer pricing for risk and capital Consider transfer pricing for other high-risk transactions

Aggressive Tax Planning Increased Documentation

• •

Broadening the Permanent Establishment concept Impact on agent/ commissionaire arrangements

Transfer Pricing


Permanent Establishment

Su b

Dispute Resolution



Coher en ce

Interest Deductions

nsparency Tra

Access to Treaties


Control Foreign Corporations (CFC)


Impact on hybrid arrangements/ instruments Increase in local withholding taxes on such instruments/ arrangements


ce an st

Limiting treaty access Introduction of General/ Specific anti-abuse provisions Increased focus on alignment between profits and substance



• •

Introduction of new CFC rules in some countries Strengthening of CFC rules where they exist currently Impact on passive intercompany income

Country-by-country reporting Automatic exchange of information between countries Master file/local file Re-examine transfer pricing documentation


• • • •

Disclosure of aggressive tax planning arrangements Revisit holding company or hub companies structure Countering harmful tax practices (Tax rulings, etc.) Possible changes to Parent-subsidiary directive

What is country-by-country (CbC) reporting? Implementation of the CbC in India is imminent. Since this is a minimum standard, India is bound to implement such a reporting requirement. Therefore, companies need to be prepared to comply with CbC reporting requirements. • D ► esigned to increase transparency by providing tax authorities with sufficient information • R ► equirement to use a consistent template to provide information on global allocation of income, economic activity and taxes paid in affected countries • F ► ailure to comply may expose the company to regulatory actions • A ► pplies to MNEs with annual consolidated group revenue of more than €750 million • F ► iling with tax authority in parent country, to be shared with tax authorities in countries where group has entities

CbC Report High-level information about jurisdictional allocation of revenue, profit, taxes, assets and employees to be shared with all tax authorities where MNEs have operations.

Master File High-level information about MNEs’ business, transfer pricing policies and agreements with tax authorities in a single document available to all tax authorities where MNEs have operations.

Local File Detailed information about MNEs’ local business, including related party payments and receipts for products, services, royalties, interest, etc.

BEPS risk review: EY approach BEPS risk review

Why EY?

• A heat-map summary to enable groups to form a prioritized plan to mitigate risks

Our International Tax Services are provided by a global team of BEPS specialists. They are uniquely placed to assess BEPS-related tax risk, with: • EY India’s response team, which have developed significant intelligence based on proactive interaction with the Government of India on the BEPS initiative

• An objective and critical assessment of the key BEPS risks for each investment structure

• EY’s Global BEPS response team, who have significant global insight related to the BEPS initiative • EY has a proprietary high-level assessment tool that help gain initial insight of potential risks and offers opportunity to strategize dealing with these risks

• Identification of specific risks within different jurisdictions

• Relevant country specialists with detailed understanding of local territory legislative changes

• A follow-up plan to mitigate or, where relevant, monitor the risks

• Practical experience of structures commonly used by MNEs • Prior experience of risk reviews of this type

Partner contacts Ahmedabad Dhinal Shah + 91 79 6608 3850 Bengaluru Rajendra Nayak + 91 80 6727 5454 Chennai Ashwin Ravindranath +91 44 6654 8512

Delhi Vijay Iyer +91 11 6623 3240 Raju Kumar +91 124 671 4221 Himanshu Bhatia +91 124 612 1694

Hyderabad Jayesh Sanghvi + 91 40 6736 2078 Mumbai Keval Doshi + 91 22 6192 0650 Keyur Shah +91 22 6192 0970

Giselle H Barboza +91 22 6192 0735 Pune Amit B Jain +91 20 6603 6160

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EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global Limited

EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global Limited

BEPS - Is Your Business Ready for Base Erosion Profiting Shifting? - EY India  

Is your business ready for BEPS? Read the Impact of BEPS actions on your business & the approach of EY for BEPS.

BEPS - Is Your Business Ready for Base Erosion Profiting Shifting? - EY India  

Is your business ready for BEPS? Read the Impact of BEPS actions on your business & the approach of EY for BEPS.