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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.

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

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  1. Is your business ready to respond to BEPS?

  2. Background 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). “We are strongly committed to a global response to cross-border tax avoidance and evasion so that the tax system supports growth- enhancing fiscal strategies and economic resilience.” G20* 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. * http://articles.economictimes.indiatimes.com/2014-09-22/ news/54199227_1_tax-base-g20-tax-evasion

  3. The world after BEPS External pressures Relevance to the business model Responses • OECD BEPS project • Base protection in source territories • EU responses, e.g., state aid, changes to parent- subsidiary 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 • Increased focus on deductibility of: • 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 • Revisit holding cos or hub cos (business alignment, substance, transparency, sustainability and rulings renewal) • 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

  4. 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.

  5. • • 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 • • Limitation of interest deductions for debt funding Impact on various financial instruments Rebalance of capital structure v. supply chain 9 1 • • Broadening the Permanent Establishment concept Impact on agent/ commissionaire arrangements Control Foreign Corporations (CFC) Access to Treaties • • 8 Interest Deductions 2 Permanent Establishment Substance TransparencyCoherence BEPS Business Impact • Consider transfer pricing for intangibles Consider transfer pricing for risk and capital Consider transfer pricing for other high-risk transactions • Impact on hybrid arrangements/ instruments Increase in local withholding taxes on such instruments/ arrangements Hybrid Mismatch Transfer Pricing 7 • 3 • • Dispute Resolution Aggressive Tax Planning 6 Increased Documentation 4 • 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 5 • Re-examine the approach toward dispute resolution Increase in disputes post BEPS reforms Greater use of Mutual Agreement Proceedings • • • • • Country-by-country reporting Automatic exchange of information between countries Master file/local file Re-examine transfer pricing documentation • • • •

  6. 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. • ► Designed to increase transparency by providing tax authorities with sufficient information • ► Requirement to use a consistent template to provide information on global allocation of income, economic activity and taxes paid in affected countries • ► Failure to comply may expose the company to regulatory actions • ► Applies to MNEs with annual consolidated group revenue of more than €750 million • ► Filing 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.

  7. 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 • An objective and critical assessment of the key BEPS risks for each investment structure • Identification of specific risks within different jurisdictions • A follow-up plan to mitigate or, where relevant, monitor the 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 • 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 • Relevant country specialists with detailed understanding of local territory legislative changes • 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 dhinal.shah@in.ey.com Bengaluru Rajendra Nayak + 91 80 6727 5454 rajendra.nayak@in.ey.com Chennai Ashwin Ravindranath +91 44 6654 8512 ashwin.ravindranath@in.ey.com Delhi Vijay Iyer +91 11 6623 3240 vijay.iyer@in.ey.com Raju Kumar +91 124 671 4221 raju.kumar@in.ey.com Himanshu Bhatia +91 124 612 1694 bhatia.himanshu@in.ey.com Hyderabad Jayesh Sanghvi + 91 40 6736 2078 jayesh.sanghvi@in.ey.com Mumbai Keval Doshi + 91 22 6192 0650 keval.doshi@in.ey.com Keyur Shah +91 22 6192 0970 keyur.shah@in.ey.com Giselle H Barboza +91 22 6192 0735 giselle.barboza@in.ey.com Pune Amit B Jain +91 20 6603 6160 amit.b.jain@in.ey.com

  8. Ernst & Young LLP EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit www.ey.com/in. Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata - 700016 © 2015 Ernst & Young LLP. Published in India. All Rights Reserved. EYIN1512-136 ED None This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. RS 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

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