FURNISHING OF REPORT IN RESPECT OF INTERNATIONAL GROUP

[Mr. M. GOVINDARAJAN]

Group

Section 286(9)(e) of the Income Tax Act, 1961 (‘Act’ for short) defines the term ‘group’ as including a parent entity and all the entities in respect of which, for the reason of ownership or control, a consolidated financial statement for financial reporting purposes,-

• is required to be prepared under any law for the time being in force or the accounting standards of the country or territory of which the parent entity is resident; or
• would have been required to be prepared had the equity shares of any of the enterprises were listed on a stock exchange in the country or territory of which the parent entity is resident.

International group

Section 286(9)(f) of the Act defines the expression ‘international group’ as any group that includes-

• two or more enterprises which are resident of different countries or territories; or
• an enterprise, being a resident of one country or territory, which carries on any business through a permanent establishment in other countries or territories.

Parent entity

The expression ‘parent entity’ is defined as a constituent entity, of an international group holding, directly or indirectly, an interest in one or more of the other constituent entities of the international group, such that,-

• it is required to prepare a consolidated financial statement under any law for the time being in force or the accounting standards of the country or territory of which the entity is resident; or
• it would have been required to prepare a consolidated financial statement had the equity shares of any of the enterprises were listed on a stock exchange, and, there is no other constituent entity of such group which, due to ownership of any interest, directly or indirectly, in the first mentioned constituent entity, is required to prepare a consolidated financial statement,  that includes the separate financial statement of the first mentioned constituent entity;

Constituent entity

Constitute entity is-

• any separate entity of an international group that is included in the consolidated financial statement of the said group for financial reporting purposes, or may be so included for the said purpose, if the equity share of any entity of the international group were to be listed on a stock exchange;
• any such entity that is excluded from the consolidated financial statement of the international group solely on the basis of size or materiality; or
• any permanent establishment of any separate business entity of the international group included in  the above two, ifsuch business unit prepares a separate financial statement for such permanent establishment for financial reporting, regulatory, tax reporting or internal management control purposes.

Alternate reporting entity

The expression ‘alternate reporting entity’ is defined as any constituent entity of the international group that has been designated by such group, in the place of the parent entity, to furnish the report of the nature in the country or territory in which the said constituent entity is resident on behalf of such group;

Consolidated financial statement

The expression ‘consolidated financial statement’ is defined as the financial statement of an international group in which the assets, liabilities, income, expenses and cash flows of the parent entity and the constituent entities are presented as those of a single economic entity.

Systematic failure

The expression ‘systematic failure’ is defined as with respect to a country or territory means that the country or territory has an agreement with India providing for exchange of report of the nature referred to in sub-section (2), but-

• in violation of the said agreement, it has suspended automatic exchange; or
• has persistently failed to automatically provide to India the report in its possession in respect of any international group having a constituent entity resident in India.

Report

The report in respect of international group shall include-

• the aggregate information in respect of-

• the amount of revenue;
• profit or loss before income-tax;
• amount of income-tax paid;
• amount of income-tax accrued;
• stated capital, accumulated earnings;
• number of employees; and
• tangible assets not being cash or cash equivalents,

with regard to each country or territory in which the group operates;

•  the details of each constituent entity of the group including the country or territory in which such constituent entity is incorporated or organized or established and the country or territory where it is resident;
• the nature and details of the main business activity or activities of each constituent entity; and
• any other information as may be prescribed.

Intimation to DG

Every constituent entity resident in India, amounting to a constituent of an international group, the parent entity of which is not resident in India, shall intimate the Director General of Income Tax (Risk Assessment)  in the Form  - 3CEAC,the following-

• whether it is the alternate reporting entity of the international group; or
• the details of the parent entity or the alternate reporting entity, if any, of the international group, and the country or territory of which the said entities are resident,

at least two months prior to the due date for furnishing of report.

Furnishing of report

Section 286(2) provides that every parent entity or the alternate reporting entity, resident in India, shall, for every reporting accounting year, in respect of the international group of which it is a constituent, furnish a report, to the Director General (Risk Assessment) within a period of twelve months from the end of the said reporting accounting year, in the form No. 3CEAD.

In case the parent entity of the constituent entity is resident of a country or territory, where, there has been a systemic failure of the country or territory and the said failure has been intimated to such constituent entity, the period for submission of the report shall be six months from the end of the month in which said systemic failure has been intimated.

Section 286(4) provides that a constituent entity of an international group, resident in India, other than the parent entity or the alternate reporting entity, resident in India, shall furnish the report referred to in the section 286(2), in respect of the international group for a reporting accounting year within the period as may be prescribed, if the parent entity is resident of a country or territory,-

• where the parent entity is not obligated to file the report under section 286(2);
• with which India does not have an agreement providing for exchange of the report of the nature under section 286t(2);
• there has been a systemic failure of the country or territory and the said failure has been intimated by the prescribed authority to such constituent entity.

Where there are more than one such constituent entities of the group, resident in India, the report shall be furnished by any one constituent entity, if,-

• the international group has designated such entity to furnish the report in accordance with the provisions section 286(2)on behalf of all the constituent entities resident in India; and
•  the information has been conveyed in writing on behalf of the group to the prescribed authority.

The provisions of section 286(4) shall not be applicable if, an alternate reporting entity of the international group has furnished a report of the nature referred to in section 286(2) with the tax authority of the country or territory in which such entity is resident, on or before the date specified by that country or territory and the following conditions are satisfied, namely:-

• the report is required to be furnished under the law for the time being in force in the said country or territory;
•  the said country or territory has entered into an agreement with India providing for exchange of the said report;
• the prescribed authority has not conveyed any systemic failure in respect of the said country or territory to any constituent entity of the group that is resident in India;
• the said country or territory has been informed in writing by the constituent entity that it is the alternate reporting entity on behalf of the international group; and
• the prescribed authority has been informed by the entity.

Rule 10DB(5) provides that  if there are more than one constituent entities resident in India of an international group, other than the parent entity or alternate entity, then the report referred to in sub-rule (4) may be furnished by that entity which has been designated by the international group to furnish the said report and the same has been intimated to the Director General of Income-tax (Risk Assessment) in Form No. 3CEAE.

Notice

The prescribed authority may, for the purposes of determining the accuracy of the report furnished by any reporting entity, by issue of a notice in writing, require the entity to produce such information and document as may be specified in the notice within 30 days of the date of receipt of the notice. The prescribed authority may, on an application made by such entity, extend the period of 30 days by a further period not exceeding 30 days.

Non applicability

Section 286 shall not be applicable in respect of an international group for an accounting year, if the total consolidated group revenue, as reflected in the consolidated financial statement for the accounting year preceding such accounting year does not exceed ₹ 5,500 crores.

Foreign currency

Where the total consolidated group revenue of the international group, as reflected in the consolidated financial statement, is in foreign currency, the rate of exchange for the calculation of the value in rupees of such total consolidated group revenue shall be the telegraphic transfer buying rate of such currency on the last day of the accounting year preceding the accounting year.

Obligation of Authority

 The Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be, shall specify the procedure for electronic filing of Form No. 3CEAC, Form No. 3CEAD and Form No. 3CEAE and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the information furnished under this rule.