BEPS presentation -Final - Copy

KPMG BEPS Action
Plan Informative
Discussion
CFO India Network
27th November 2014

Areas of discussion
Tax Morality and Transparency1 3
OECD BEPS Action Plan3 9
Action 1 – Addressing the tax challenges of the digital economy4 15
Action 2 – Neutralizing effects of hybrid mismatch arrangements5 21
Action 6 – Preventing the granting of treaty benefits in inappropriate
circumstances
6 26
Action 15 – Developing a Multilateral Instrument to Modify Bilateral Tax
Treaties7 29
Need for Base Erosion Profit Shifting Action Plan- ‘BEPS’2 6
Action 5 – Countering harmful tax practices more effectively, taking into
account transparency and substance
8 31
Action 8 – Transfer Pricing aspects of intangibles9 33
Action 10 – Transfer Pricing aspects – low value-add intra-group
activities
10 40
Action 13 – Transfer Pricing Documentation and country-by-country
reporting
11 45

© 2012 KPMG, an Indian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights
reserved.
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3
OECD – BEPS 2014Tax Morality and Transparency
Do taxpayers have a “moral duty” to pay
their “fair share” of taxes?
Should corporations show what they are
contributing to society via tax payments?
Not merely a theoretical tax debate

reserved.
OECD – BEPS 2014Tax Morality and Transparency …continued
Media
Board
Share-
holders
NGOs
Lobbyists
Communities
Government
 Tax systems have not kept up
with changes in business
model
 Governments under significant pressure to reduce deficits
 Simultaneously, countries compete for profitable investment considering tax rates
 Reducing the “Tax Gap” – Underground Economy versus the Multinationals
 Citizen pro tax fairness keeping the spotlight on
this issue
 Customers’ negative
perceptions, particularly of
household retail names
The Tax
Debate Customers /
Suppliers

Need for Base
Erosion Profit
Shifting Action plan-
‘BEPS’

reserved.
OECD – BEPS 2014Need to Curb BEPS – Some Insights
One of Fortune 500 US based company
Pre-tax
Income ($b)
Pre-tax
contribution
%
Employee
Nos. %
Customers
%
Effective
Tax Rate
US 10.20 30% 67% 39% 46%
Ireland 22.00 64% 4% 1% 0.06%
Others 2.00 6% 29% 60% 29%
With 4% employees
and 1% customers-
Ireland contributes
to 64% to US based
Company’s Profit

reserved.
OECD – BEPS 2014
Tax planning or evasion or management ??
Double Irish Dutch Sandwich
 Avoidance of
Withholding tax
owned by C in favour
of B
 No withholding tax
on royalty payments
made to entities
based in Netherlands
 C can charge royalty
paid to D against its
profit
 B is the resident of
tax haven and hence
no tax is attracted on
Royalty received
 Ultimately Profit
shifted to a
jurisdiction with no
significant tax rate

reserved.
OECD – BEPS 2014Tax Heavens – benefits of being low/no tax jurisdiction
 Four key factors to define a “tax haven”:
a) No or nominal tax on relevant income
b) Lack of effective exchange of information
c) Lack of transparency
d) No substantial activities
 The cumulative profits of different countries
recorded in various tax havens represents a
substantial part of those countries GDP
Tax Havens CFC profits as a % to
GDP
Bahamas 43.30%
Bermuda 645.70%
British Virgin Islands (‘BVI’) 354.70%
Cayman Islands 546.70%
Jersey 35.30%
Liberia 61.60%
Luxembourg 18.20%
Marshall Islands 339.80%
An illustrative example of US controlled foreign Company
profits as a percentage of GDP of tax havens:

Organization for
Economic Co-operation
and Development
(OECD)
BEPS Action Plan

reserved.
OECD – BEPS 2014OECD BEPS Action Plan
“BEPS arises because under the existing rules MNEs are often
able to artificially separate the allocation of their taxable profits
from the jurisdictions in which these profits arise.
This can result in income going untaxed anywhere, and
significantly reduces the corporate income tax paid by MNEs in
the jurisdictions where they operate, thus affecting competition,
distorting investment decisions and reducing overall trust in the
tax system.“
– OECD Webinar

reserved.
OECD – BEPS 2014OECD BEPS Action Plan – In a nutshell
 A group of twenty- ‘G20’ countries realized the need of preventing BESP and
approached OECD to address the issue related to BEPS.
 On 19 July 2013 the OECD released an Action Plan on Base Erosion and Profit
Shifting (BEPS) which was presented to the meeting of G20 Finance Ministers in
Moscow.
The purpose of the Action Plan is “to prevent double non-taxation, as well as cases
of no or low taxation associated with practices that artificially segregate taxable
income from activities that generate it.”
The report indicates that “no or low taxation is not per se a cause for concern, but
it becomes so when it is associated with practices that artificially segregate taxable
income from the activities that generate it.”
The Action Plan covers 15 specific Actions which are broadly to be achieved within
a two year time frame (i.e. by the end of 2015). September / October / November
2014, OECD released various recommendations for 9 out of 15 Action Points.
The
coherence
of corporate
tax at the
international
level
Transparency, coupled
with certainty and
predictability
Realignment of
taxation and
substance
15 Actions organized around
three main pillars

reserved.
OECD – BEPS 2014OECD BEPS Action Plan – An ambitious timeline
Jul 2012 Feb 2013 July 2013 Sept /
Oct / Nov 2014
Dec 2015
June 2012
Project announced /
started
February 2013
Release of Document addressing Base
Erosion and Profit Shifting
July 2013
Release of Action plan with 15
separate actions / work streams
September 2014 – Release of
recommendations pertaining to 7
out of 15 Action Points and
Oct/Nov additional 2 Points
December 2015
Completion of
Reminder action plan
2016 onwards
2016 and onwards
Monitoring additional / on
–going compliance
Sept 2015
September / October / November 2014 September 2015 December 2015
 Digital Economy Report
 Hybrids
 Review of HTP Regimes
 Preventing Treaty Abuse (including draft on
follow-up work)
 Addressing TP aspects of Intangibles
 Addressing TP documentation
 Multilateral Instrument Report
 Addressing avoidance of PE status
 Addressing TP aspects of other high risk
transactions (Low Value-Adding Intra-Group
Services)
 CFC Rules
 Interest Deductibility
 Strategy on expansion of FHTP
 Addressing TP aspects of Intangibles
Addressing TP aspects of risks and capital
 Report on Data and Economic Analyses
 Mandatory Disclosure Rules
 Dispute Resolution
 Addressing TP Interest Deductions
 Revision of HTP Criteria
 Multilateral Instrument

Action 1:
Addressing the Tax
Challenges of the Digital
Economy

reserved.
OECD – BEPS 2014Digital Economy – Background
 Key features:
Mobility of
business
functions
Reliance on Data
Mobility of Users
Excessive
reliance on
intangible
Multi-sided business
model
Networks effect-
impact of one
user’s decision
on other users
Volatility- low barrier
to entry and fast
growth

reserved.
OECD – BEPS 2014Digital Economy – Indian scenario
 With 200+ million Internet users
 Adding 4.5 million every month
 India will surpass US and become the second largest user base globally
 Five start-ups crossing a billion dollar in value
 Currently, 100% FDI in E-commerce is allowed under automatic route in Business to Business (B2B) model and not
B2C model
− Under B2B model, the ecommerce portal Company sells its product to an intermediate buyer who then sells the
product to the final customer, while under B2C model, the ecommerce portal Company sells the product to the
final customer
− Retail trading, in any form, by means of E-commerce is not permissible whether singe Brand / Multi Brand

reserved.
OECD – BEPS 2014Digital Economy – Indian scenario
Significant challenges in:
 The determination of the jurisdiction where value creation occurs
 The application of traditional concepts of source and residence
X Co.
(outside India)
Indian Advertisers
Online Advertising Fees
India Co
Marketing
Support
Y Co.
(outside India)
Transfer of IP
Users of free
online
services
Data
Development of algorithms (IP)
for targeted display of
advertising through use of data
Challenges in the digital economy – India Illustration

reserved.
OECD – BEPS 2014
Digital Economy – BEPS recommendations
Way forward:
 Task force to continue work on broader challenges including nexus, data and characterization
to ensure that these are addressed effectively
 Supplementary report addressing impact of other BEPS initiatives to be released by December
2015
 Key tax challenges of the digital economy to be addressed as part of
other OECD/BEPS initiatives including Artificial avoidance of PE
(AAPE), CFC Rules, Transfer Pricing and VAT
 Action 7 (AAPE) to consider whether activities hitherto considered as
preparatory or auxiliary activities may result in core activities in digital
economy
 Explore possibility of taxation based on concept of “Significant Digital
Presence”
 Explore possibility of introducing withholding tax on sale of digital
goods / services

reserved.
OECD – BEPS 2014Digital Economy – Impact of BEPS recommendations in India
 Having regard to the BEPS recommendations, E-commerce business models likely to be subjected to
increased scrutiny in India. Specifically:
• PE assertions by the Tax office based on accessibility of websites from India, presence of equipment,
agents in India, are likely to increase. Also potential tax exposure in India on account of “significant
digital presence” in India
• Value creation through use of customer data generated from India– increased possibility of attribution of
profits to India
• Increased focus on withholding tax implications on e-commerce payments to non-residents
• Possibility of litigation over characterization of payments relating to new digital products and services
(e.g. Cloud computing) as royalties / FTS
Urgent need to evaluate business models and digital presence to assess risks and identify
remedial measures

Action 2:
Neutralising the effects
of hybrid mismatch
arrangements

reserved.
OECD – BEPS 2014Hybrid Mismatch – Background
 Hybrid arrangements – Involve use of cross-border
differences in characterisation of entities and instruments to
produce mismatched tax outcomes
 Objective of the BEPS Action plan is to develop model
treaty provisions and design domestic rules to neutralize the
effect of hybrid instruments / entities by not permitting:
• Multiple deductions for a single expense
• Deduction in one country without corresponding
taxation in another
• Generation of multiple foreign tax credits for one
amount of foreign tax paid

reserved.
OECD – BEPS 2014Hybrid Mismatch – Examples
A Co.
B Co.
Country A
Country BHybrid
Financial
instrument
DEDUCTION IN ONE COUNTRY WITHOUT
TAXATION IN ANOTHER:
 B Co issues a hybrid financial instrument to
A Co.
 Instrument is characterized as debt in
Country B and as equity in Country A
 Country B allows deduction to B Co. for
interest payments made on the instrument
 Country A treats the payment as ‘dividend’,
which is entitled to participation exemption
BEPS Recommendations:
 Country B to deny deduction to Payer (B Co.)
 Defensive rule: Country A to treat receipt as
ordinary income of A Co.
Interest

reserved.
OECD – BEPS 2014Hybrid Mismatch – Examples ….continued
A Co.
Country A
Country B
B Co.B Co.
B Sub 1
(Operating Sub)
Bank
Interest
Loan
DOUBLE DEDUCTION ON PAYMENTS BY HYBRIDS:
 B Co. is a 100% subsidiary of A Co.
 B Co. is disregarded for Country A tax purposes
 B Co. borrows money and pays interest in Country B
(B Co. derives no other income)
 Interest payment are deductible in the hands of A
Co. in Country A, since B Co. is disregarded
 B Co. is consolidated with B Sub 1 for tax purposes
in Country B – Interest paid by B Co. claimed as
deduction against operating income of B Sub 1
BEPS Recommendations:
 Country A (Parent Jurisdiction) to deny deduction
 Defensive rule: Country B (Payer Jurisdiction) to
deny deduction

reserved.
OECD – BEPS 2014Hybrid Mismatch – Impact of BEPS recommendations in India
 BEPS recommendations (once implemented) are likely to impact cross-border arrangements / instruments
where tax characterizations vary in both countries
 In an Indian context, such risks may typically revolve around situations where :
• Debt Instruments issued by Indian Cos (e.g. CCDs) may be considered as equity in the debenture
holder’s jurisdiction
• Indian partnerships / LLPs are considered pass-through in overseas jurisdictions
• Dual-resident companies
 There is a need to identify arrangements like the above which could be hit under BEPS and to take remedial
measures.

Action 6:
Preventing the granting
of treaty benefits in
inappropriate
circumstances

reserved.
OECD – BEPS 2014
Preventing the granting of treaty benefits in
inappropriate circumstances
 Treaty abuse and treaty shopping identified as one of the most important sources of BEPS concerns
 Three pronged approach recommended to address treaty abuse and shopping arrangements
Design rules to prevent
granting of treaty
benefits in inappropriate
circumstances
Tax treaties not intended
to be used to generate
double non-taxation
Identification of tax
policy consideration –
required before entering
into a tax treaty
 Treaty shopping
“Treaty shopping” generally refers to arrangements through which a person who is not a resident of one of
the two Contracting States that concluded a tax treaty may attempt to obtain benefits that the treaty grants
to residents of these States

reserved.
OECD – BEPS 2014Treaty Abuse – An Indian perspective
 Supreme Court Ruling in Azadi Bachao Andolan on India-Mauritius treaty
 LOB - a key component of India’s recent tax treaty negotiations/ re-negotiations (such as treaties signed by India
with UK, Spain and Poland)
LOB meaning:
 Subjective arrangement: This is entered into to obtain tax benefits in countries such as Malaysia, Ethiopia,
Estonia and Finland.
 Objective treaty: The benefits of this treaty are extended only if the claimant is a qualified person, generally a
government entity, listed company, and so on. It is with countries such as Iceland, Tajikistan, Tanzania and
the US.
 Beneficial ownership: This ensures that the benefit of lower withholding tax rate is given to genuine tax
residents of a contracting state. This is with the US, UK, Singapore and Finland.
 Substance treaty: Entered into with Singapore, the benefits are given considering the substance of the entity
(not merely a conduit/shell company).
 GAAR provisions introduced in Indian Income-tax Act (proposed to be effective from FY 2015-16)
 Indian tax office could use BEPS recommendations to deny treaty benefits for inbound investments in India
through mere holding / shell companies.
 Urgent need to evaluate investment holding structures and build appropriate commercial rationale for the same.

Action 15:
Developing a multilateral
instrument to modify
bilateral tax treaties

reserved.
OECD – BEPS 2014
Developing a multilateral instrument to modify
bilateral tax treaties
 Need to address current bilateral tax treaty system which
facilitates BEPS
• Updation of the current tax treaty network highly
burdensome due to multiple number of bilateral
treaties
 Focus on feasibility of use of a multilateral instrument to
implement BEPS measures and modify bilateral tax
treaties
• Multilateral instrument feasible and desirable based
on precedents from various areas other than tax
 Recommended to convene an International Conference in
early 2015 to develop the multilateral instrument by OECD
and G20 countries

Action 5: Countering
harmful tax practices
more effectively, taking
into account
transparency and
substance

reserved.
OECD – BEPS 2014
Countering harmful tax practices more effectively,
taking into account transparency and substance
 Forum on Harmful Tax Practices (‘FHTP’) to take necessary action to deliver:
• Finalization of review of member country preferential regimes;
• Strategy to expand participation to non-OECD member countries; and
• Consideration of revisions or additions to the existing framework
 For review of the existing preferential regimes, emphasis put on:
• Elaborating a methodology to define the substantial activity requirement in the context of IP regimes;
• Improving transparency through compulsory spontaneous exchange on rulings related to preferential
regimes
 A progress report provided on the review of regimes of OECD member and associate countries in the
OECD / G20 Project on BEPS
Substantial activity – Adverse impact on IP-holding companies which derive substantial profits on
account of “legal ownership” of the IP

Action 8
Transfer Pricing aspects
of intangibles

reserved.
OECD – BEPS 2014Definition of ‘Intangible’- within India
Marketing-
Trade mark,
Brand names,
logos
Customer-
Customers lists,
open purchase
order
Engineering-
Industrial
design, trade
secrets
Technology-
Patents,
technical Know-
how
Artistic-
Copyrights,
Literary work
Intangible
Data
processing-
software
copyright,
automated
databases
Contract License agreements , Franchise
agreements , non-compete agreements
Human Capital Trained & Organised work force,
Union Contracts
Location
Leasehold interest, Air rights,
Water rights
Goodwill
Institutional / Professional
Practice / Celebrity goodwill ,
General business going
concern value
Others Methods, Systems, Procedures,
Campaigns, Surveys, Forecasts

reserved.
OECD – BEPS 2014Transfer Pricing aspects of intangibles
Objective
 A broad and clearly delineated definition of intangibles
 Ensure that transfer pricing outcomes are in line with 'Value Creation”
 Developing TP rules or special measure for transfer of hard to value intangibles
OECD definition of intangible
“something of value which is not a physical asset or a financial asset which is capable of being
owned or controlled for use in commercial activities, and whose use or transfer would be
compensated had it occurred in a transaction between independent parties in comparable
circumstances”
Six Categories of Intangibles defined
including-
Patents know-how and
trade secrets
Trademarks Trade name
and Brands
goodwill and
ongoing concern
value

reserved.
OECD – BEPS 2014Transfer Pricing aspects of intangibles
Guidance issued has certain areas in “interim draft”
To be finalised in 2015 along with other BEPS action points that are closely related (risks and capital,
high-risk transactions and hard to value intangibles
Key areas covered in the Guidance
 Detailed guidance on location savings,
assembled workforce and MNE group
synergies as part of Chapter I of OECD
guidelines
 Ownership of intangibles and entitlement to
returns – who is entitled to returns from
intangibles
 Relevant considerations for various
transactions involving intangibles
 Importance of functions, assets and risk analysis in
determining arms length price of transaction involving
intangibles – Development, Enhancement,
maintenance, protection and exploitation
 Emphasis on ex-ante return adjustments
 Determination of arm’s length price of intangible when
the value is highly uncertain

reserved.
OECD – BEPS 2014Marketing Intangible and R &D- India perspective
 Marketing intangibles
 Subject to huge adjustment in India
 Application of ‘Bright-line-test’ by Indian Revenue authorities for examining advertising, marketing and
promotional (‘AMP’) activities
 Adopting the ‘‘significant people functions’’ approach in determining the economic owner of intangibles
 R&D arrangements
Even before the introduction of the BEPS action plan the Indian Revenue authorities issued Circular no. 6
which discusses circumstances in which profit split method will apply for determination of compensation in
case of R&D centers developing intangibles.
Contract R&D
Entities with minimal functions, assets and risk, foreign
entity funds and monitors progress
Circular No. 6
Entrepreneurial R&D Centers
Entities performing significantly
Important functions, assets and risk
Cost plus remuneration is appropriate and
share in profits not necessary
Intangible related return to be attributed to the
Indian researchers under Profit Split Method

reserved.
OECD – BEPS 2014Action 8 - Intangibles impact in India
What do we expect
 Possibility of in-depth scrutiny by the Indian
Revenue authorities on transactions involving
intangibles (location savings, assembled
workforce, group synergies etc) based on OECD
guidelines
What needs to be done : Companies operating in India need to analyze
 Legal ownership and contractual
arrangements vis-à-vis intangibles to begin
with
 But as next steps more importantly focus
has to be on thorough analysis of
Functions, Assets and Risks (FAR) and
actual conduct of the various entities
1. Who are the parties performing and controlling the functions related to the
development, enhancement, maintenance, protection and exploitation of
intangibles?
2. Who is contributing the assets, including intangibles, physical assets and
funding? Only funding without assumption of other risks entitles to only
return on funding, not the entire intangible related returns
3. Confirm the consistency between conduct of the parties and the legal
arrangements
4. Recharacterise the transactions as necessary to reflect each party’s
contributions towards the intangibles
INDIAN tax authorities are likely to draw inference
and support from OECD guidelines in determining
the return from intangibles-
Recent judgment in case of Mitsubishi Corporation
India Private Limited ITAT relied on OECD guidelines
for loaction savings and assembled workforce.

Action 10
Low value-adding intra-
group services –
Discussion Draft

reserved.
OECD – BEPS 2014
Low value-adding intra-group services – Discussion Draft
Objective
 Measures proposed would help reduce the scope
for erosion of tax base through excessive
management fees and head office expenses
Themes for Intervention /
Approach
Identify broad range of intra-group
services, which command a very
limited profit mark-up on costs
Apply a consistent allocation key for
all recipients
Provide greater transparency
through specific reporting
requirements
What constitutes ‘low value-adding intra-group services’
 Services that are of supportive nature;
 Don’t form part of the core business of Multi National Enterprise Group;
 Don’t require the use of unique and valuable intangibles and do not lead to the creation of unique and valuable
intangibles;
 Don’t involve the assumption or control of substantial or significant risk and don’t give rise to the creation of
significant risk

reserved.
OECD – BEPS 2014
Activities that would not qualify as a
low value-adding intra-group services
 Services constituting the core business
of a MNE group;
 Research and development services;
 Manufacturing and production services;
 Sales, marketing and distribution
activities;
 Financial transactions;
 Extraction, exploration, or processing of
natural resources;
 Insurance and reinsurance;
 Services of corporate senior
management.
Activities that would qualify as a low value-adding intra-group services
 Accounting and auditing;
 Processing and management of accounts receivable and accounts payable;
 Human Resources activities such as staffing and recruitment, training and
employee development, remuneration services and developing and monitoring of
staff health procedures, safety and environment relating to employment matters;
 Monitoring and compilation of data relating to health, safety, environmental and
other standards regulating the business;
 Information technology services where they are not part of the principal activity of
the group;
 Internal and external communications and
public relations support (but excluding specific advertising or marketing activities
as well as development of underlying strategies);
 Legal services;
 Activities with regard to tax obligations;
 General services of an administrative or
clerical nature.

reserved.
OECD – BEPS 2014
Simplified determination of arm’s length charges for low value-adding intra-group services:
 Profit Mark-up – MNE service provider shall apply a profit-mark to all costs in the pool. Same mark-up
shall be utilized for all low-value adding intra-group services irrespective of the categories of services.
Prescribed mark-up to be in the range of 2% to 5% of the relevant cost.
Application of benefits test to low value-adding intra-group services:
 Tax administration should consider benefits only by categories of services and not on a specific charge
basis
 Single annual invoice describing a category of services should suffice to support the charge and
correspondence, or other evidence of individual acts should not be required.

reserved.
OECD – BEPS 2014India Perspective
 From a Captive Shared Service center perspective, certain points such as nature of services outlined as
‘low value-adding’, manner of classifying core and non-core business activities, and proposed mark-up in
the range of 2 per cent to 5 per cent etc may be challenged by tax authorities;
 A non-core activity for a Multinational National Corporation (MNC) could be a core activity from a shared
services / back-office perspective and hence appropriate margins would need to determined from a transfer
pricing perspective;
 MNCs need to take cognizance while planning the cross charge for services which might be high value /
low value.

Action 13
Transfer Pricing
Documentation and
Country-by-Country
(CbC) reporting

reserved.
OECD – BEPS 2014Action 13 - TP Documentation and CbC report
Three-tier documentation structure proposed for all countries
 Master file to provide the MNE’s blueprint i.e.
• The group’s organizational structure
• A description of the group's business, intangibles, intercompany financial activities, and financial and
tax positions
 Local file to provide material transfer pricing positions of the local entity/ taxpayer with its foreign affiliates
• Demonstrates arm’s length nature of transactions
• Contains the comparable analysis.
 Country by Country (‘CbC’) Report to provide
• Jurisdiction-wise information on global allocation of income, taxes paid / accrued, the stated capital,
accumulated earnings, number of employees and tangible assets.
• Entity-wise details of main business activities which will portray the value chain of inter-company
transactions.

reserved.
OECD – BEPS 2014Implementation and India perspective
Implementation:
 OECDs endeavor to balance:
• Usefulness of TP documentation under 3-tier structure to tax authorities, and
• Increased compliance cost and efforts for taxpayers
 Though consented by OECD member countries and G20 countries, which includes India:
• Mechanism for sharing information with tax administrations yet to be formalized
• Whether Master File and CbC report to be filed by Parent Co. or local entity
• Taxpayers concerns about sharing business sensitive data
• CbC report ought not be used by tax administrations to propose transfer pricing adjustments based on
a global formulary apportionment of income.
 Indian Competent Authority commented – India is actively and closely involved in BEPS action plan and
will seek to implement OECDs recommendations on TP documentation

reserved.
OECD – BEPS 2014Country by Country Reporting template (1/2)

reserved.
OECD – BEPS 2014Country by Country Reporting template (2/2)

reserved.
OECD – BEPS 2014BEPS impact in India : Action 13 - Documentation
What do we expect
 Adoption of 3 tier documentation structure by The Indian Revenue authorities
 Increased compliance cost and burden on taxpayers
 Indian Revenue authorities may expect that the Master File and CbC report for all companies operating in India
should be filed locally
 As per OECD guidance the Master File and CbC Report should be used only for risk assessment procedures, but
there may be a temptation to use it for allocation of revenue and profits based on functions of various group entities
rather than only looking at Indian entities functions.
What needs to be done
 Detailed functional analysis- Companies operating in India especially Indian headquartered companies need to tie
up the functional analysis of Indian operations vis-à-vis global operations as CbC report maps the groups functions
 Re-alignment of Transfer pricing global policy- Have Management discussions to re-align functions and pricing to
ensure that profits/income are allocated in accordance with value creation in each jurisdiction
 Centralized Details/ Information- Should analyse their internal accounting systems and MIS data, and upgrade the
same to enable gathering of information required in Master File and CbC report

reserved.
OECD – BEPS 2014Way Forward
 Tax and Morality debate: Here to stay
 BEPS – Game changer for the Revenue and the Taxpayers
 Domestic anti-abuse tax legislations being adopted
globally
 Substance and Transparency – part of life
 Corporate Tax Rates may be reducing, but the base is
increasing
Companies to not only adhere to compliance regulations but also review their
operating structures in various jurisdictions, as countries are expected to incorporate
the BEPS action points in their local regulations

© 2014 KPMG, an Indian Registered Partnership and a member firm of
the KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. All
rights reserved.
The KPMG name, logo and "cutting through complexity" are registered
trademarks or trademarks of KPMG International Cooperative ("KPMG
International").
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