Anticipating BEPS India impact Survey Results€¦ · Insight 49% 8% 8% 33% 2% 12% 42% 30% 15% 1% Strongly agree Neither agree or disagree Strongly disagree Agree Disagree N/A. Anticipating

Anticipating BEPS India impactSurvey ResultsDecember 2015

BEPS – An industry perspective of the anticipated India impact

The Base Erosion and Profit Shifting (BEPS) project of the Organization for Economic Co‑operation and Development (OECD) is recently in spotlight of the international tax community. It is expected that the BEPS project will have significant impact on Multinational Enterprises (MNEs).

As a member of the G20 and an active participant in the BEPS project, India is committed to the BEPS project outcome and its implementation. Indian authorities believe that structural changes and mechanisms may need to be adopted as the BEPS project will result in an increased flow of information and exchange of information under treaties. As a result companies operating in India will also need to prepare for the BEPS impact in India.

In 2014, Deloitte conducted its first global OECD BEPS survey to gauge the views of multinational companies regarding BEPS and the expected resulting impact on their organisations. In 2015, a follow‑up global survey was conducted to understand how client’s views on the tax landscape have evolved due to BEPS.

In this scenario, it is necessary to understand the industry perspective of the anticipated impact of the BEPS project in India. This survey ‘Anticipating BEPS India impact’ reflects Indian industry’s response to the BEPS project and it’s preparedness for the changes that potential domestic implementation will bring.

The responses under this survey have also been analysed and compared in light of the Deloitte global survey results.

Anticipating BEPS India impact Survey Results 2

Survey respondents 04

Survey results Overall environment 07

Impact of actions 13

Implementation 26

Summary of short answer responses 31

Content



Survey Respondents


59% Rest of the word

Survey Respondents

This India specific BEPS survey was conducted with a target audience of tax executives from multinational companies.

41% India

Size of Indian operationsHeadquarter location

Role/Title

10%

> 5000 crore

Tax Director/Tax VP

International Tax Manager

Controller/CFO

International Tax Director

Transfer Pricing Manager

Other

> 1000 - 5000 crore > 500 - 1000 crore < 500 crore

31%

21%

38%

58%

3%

18%

21%


Survey Respondents

Core Business in India Industry of operations

10%

31%

59%

Trading and Distribution

Manufacturing

Services

The targeted audience was characterized into three core businesses and further split into specific industries to get an overall industry perspective.

Automotive

Telecommunications

Energy and Resources

Financial Services

Real Estate

Lifesciences and Healthcare

Media and Entertainment

Consumer Business

Public Sector

Other

15%

54%

3%

10%

10%

5%

3%


Survey ResultsOverall environment


Question 1

In India more than 40% agree or strongly agree that the C‑suite and/or Board of Directors of their organization have inquired about the impact/increased risk for the Company, if any, due to BEPS.

Globally more than 60% agree or strongly agree that the C‑suite and/or Board of their Directors of their organization have inquired about the increased media and political activist group interest in tax.

15%

5%

36%

22%

14%

1%

15%

48%28%

13%

3%

India Global

These statistics are not surprising; tax is high on the agenda of the top management of many companies.

Insight

Strongly agree Neither agree or disagree Strongly disagree Agree Disagree N/A


India Global

38%

26%

15%

3% 18%20%

29%

43%

7%1%

Question 2

In India 38% and globally 50% agree or strongly agree that their organization has developed additional corporate policies and procedures in response to the anticipated increase in scrutiny due to BEPS.

These percentages are lower than anticipated as the level of concern about increased scrutiny of taxation due to BEPS is quite high both in India and globally.

Insight



10%

13%

59%

18%

7%

2%

48%

43%

India Global

Question 3

In India 76% and globally 91% believe that tax structures implemented today are under greater scrutiny by tax administrations due to BEPS, than they would have been a year ago.

Insight Given the focus on transparency and consistency, the universal expectation of greater scrutiny by tax administrations globally, is not unfounded.



Insight

India Global

27% of businesses in India have already changed the way they conduct their tax planning even though the majority of changes as a result of BEPS are yet to come into force. Businesses may be waiting to see how the BEPS recommendations are incorporated in the Indian legislation.

28%

49%

5%

3% 15%

25%

29%

36%

8%

2%

Question 4

Only 28% in India and 44% globally agree or strongly agree their business has changed the way they conduct tax planning for cross‑border transactions as a result of proposed changes from the BEPS project.



India Global

64%53%

21%

4%

22%

10%13%

3%

10%

Question 5

In India and globally 74% agree or strongly agree that reputational risks are of much greater concern when executing cross‑border tax planning, due to BEPS.

Insight Given the focus on corporate social responsibility and the continued media coverage of high profile cases in international tax planning, this result is not surprising.



Impact of actions


Insight

India

Changes due to CbC reporting will significantly impact the manner in which MNEs comply with documentation requirements, thus need for readiness is not surprising.

46%

21%

13%

5%10% 5%

Question 6

51% in India agree or strongly agree that their organization has assessed the potential BEPS impact of changes related to implementation of CBC and Transfer Pricing Documentation.



Insight

India Global

We agree that the income tax compliance burden will increase with the disclosure requirements coming out of BEPS, specifically country‑by‑country reporting.

20%

67%

3%

10%9%

48%

42%

1%

Question 7

In India and globally more than 85% agree or strongly agree that the corporate tax and transfer pricing compliance burden will substantially increase as a result of additional reporting from the OECD BEPS recommendations.



India

Question 8

In India, 82% agree or strongly agree that tax authorities will increase tax assessments in India as a result of the BEPS recommendations on intangibles.

Insight Given India’s contribution in the R&D, IT and marketing space, the focus on intangibles is likely to lead to an increase in assessments in India.

10%

72%

5%3%

10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Strongly agree Agree Neither agree or disagree

Disagree Strongly disagree N/A


Insight

India

Given the global diversity in objectives relating to low value added services, the concern regarding an uncoordinated approach by countries is very real.

13%

69%

8%

0% 0%

10%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

1



Question 9

In India, 82% agree or strongly agree that there will be significant impact resulting from an uncoordinated approach adopted by countries relating to low value add services.


Insight

India

Indian businesses are anticipating a more aggressive stance by tax authorities in the future, regarding hybrid instruments and interest deductions.

5%

59%

15%

3%0%

18%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Stronglyagree

Agree Neitheragree ordisagree

Disagree Stronglydisagree

N/A

Question 10

In India, 65% agree or strongly agree that although the tax authorities have not been aggressive in tax examinations of hybrid instruments and interest deductions so far, they are likely to do so going forward.


Insight

India

With the BEPS recommendations on permanent establishments, many businesses operating in India that have historically not qualified as permanent establishments will need to review their operating structure afresh.

Globally 88% agree or strongly agree that the BEPS initiative will result in significant legislative and treaty changes in many countries.

Global

13%

66%

13%

8%

Question 11

In India, 77% agree or strongly agree that they are anticipating significant legislative and treaty changes as a result of the BEPS recommendations on Permanent Establishments.

25%

63%

10%

2%



India

Introduction of CFC rules have been in discussions in India in the past. Given the renewed focus it has received under BEPS, half of the respondents anticipate CFC rules to be implemented in India.

Globally 54% agree or strongly agree that in their country they are anticipating significant unilateral legislative change to protect the tax base that is not coordinated with what other countries are doing.

Global

Question 12

In India, 51% agree or strongly agree that India is likely to introduce Controlled Foreign Corporation rules and make other unilateral legislative changes in the upcoming Budget.

Insight

49%

8%

8%

33%

2%

12%

42%

30%

15%

1%



Question 13

In India 49% and globally 74% agree or strongly agree that double taxation will occur as a result of unilateral tax law changes in anticipation of the OECD BEPS recommendations.

InsightA majority of the respondents fear the reality of double taxation as a result of unilateral tax law changes relating to BEPS.

India Global

46%

5%

8%

38%

3%0%

50%

24%20%

6%



Question 14

In India 87% and globally 98% of respondents agree or strongly agree that greater scrutiny will be applied by tax authorities surrounding the level of substantive business operations conducted in low tax countries as a result of the BEPS initiatives in the future.

Insight Given the explosion of information in the hands of tax authorities, the unanimous acknowledgement of greater scrutiny by tax authorities (surrounding the level of substantive business operations conducted in low tax countries) is not surprising.

India Global

72%

15%8%5%

54%44%

2%



Question 15

41% of respondents in India are relying on the APA or Mutual Agreement routes for dispute resolution.

InsightWith the Government’s focus on investor friendly environment, specifically relating to tax certainty, the APA route has recently become more attractive.

38%41%

21%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

Yes No Not applicable

India


Question 16

In India 67% and 82% of global respondents are not planning on securing additional resources/headcount for their tax group wholly or partly as a result of anticipated changes arising due to the BEPS initiative?

India

Insight Despite the concern about increased scrutiny and compliance burden, business are not yet planning on increasing their resources to respond to the changes arising from the BEPS initiative.

20%

67%

13%

0% 10% 20% 30% 40% 50% 60% 70%

Yes

No

Not Applicable

18%

82%

0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Yes

No

Not Applicable


Question 17

PEs and CbC were the biggest area of concern relating to BEPS recommendations:

India

InsightThough Indian operating businesses are generally concerned about the BEPS recommendations, the bigger areas of concern are relating to PE’s and CbC.

CbC

Treaty abuse

Intangibles

PE

Financing

All of the above

Other

20%

13%

13%

33%

5%

5% 11%


Implementation


18%

59%

10%

10%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%



Question 18

77% agree or strongly agree that the Indian regulators should adopt the BEPS initiatives in such a way that it does not adversely impact Indian headquartered Multinationals adversely and allows them a level playing field while competing with foreign multinationals.

India

Insight Vast majority of the respondents believe that regulators should consider and protect the interests of Indian headquartered multinationals while implementing BEPS recommendations in India.

3%


Question 19

90% agree or strongly agree that the Indian regulators should adopt the BEPS initiatives in phases, so that sufficient time is available for tax payers to prepare and comply with the regulations.

India

Insight Overwhelmingly respondents believe that sufficient time is necessary for Indian businesses to adapt to changes anticipated as a result of BEPS. Thus, Indian regulators should adopt a slow and steady approach.

31%

31%

59%

8%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%



2%


Question 20

90% agree or strongly agree that the Indian regulators should adopt the BEPS initiatives in such a way that it is applicable prospectively and not retrospectively. The BEPS implementation should apply to structures to be put in place, in the future and should not be applicable for structures put in place, in the past. India

Insight Retrospective amendments in India have significantly dented investor confidence in the past. Thus, majority of businesses believe that Indian regulators now need to avoid retrospective implementation at all costs.

51%

38%

3%8%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%




Question 21

84% agree or strongly agree that there should be a grandfathering clause, to avoid unwinding and revisiting of existing structures, that were put in place before the BEPS initiatives became applicable.

India

InsightFor a smooth transition, majority of Indian businesses believe that grandfathering clauses are essential.

51%

38%

44%

8%

8%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%



2%


Summary of short answer responses

Based on the OECD’s BEPS deliverables, so far, what will be the most significant areas of change for your business?

Structuring of contracts, intra‑group financing, cross border M&A, group TP policy

Basic business model would not change ‑ but the environment / work flows will need to be more robust / detailed and compliant from scrutiny / transparency perspective

CBC reporting is the most significant change wherein we expect all the players in the supply chain globally to share all financial details to all tax jurisdiction. This I anticipate will be a big challenge.


What has surprised you about the OECD’s BEPS deliverables to date?

This is a challenging initiative and OECD deliverables needs to be acceptable to the developing economies like India. The gap between OECD and the developing economies needs to be bridged.

Immediate applicability

Too much regulatory provisions

The collective contribution and efforts by all the countries including those who are not part of OECD like developing countries, including India gave their views.

In principle concurrence by participating nations in spite of vast / far reaching impacts and imperfections between developed and developing economies ‑ trying to put them on same platform in spite of being un‑comparable.


How is your organization responding to BEPS (e.g.; Monitoring the situation? Assessing and quantifying the impact? Implementing structural /financing changes? Doing the work in-house? Engaging external advisors?)


Monitoring the situation and implementation of necessary system changes in consultation with external advisors

Internal development, structuring business policies, plus external advisors

We are currently assessing and quantifying the impact

Engaging External Advisors

Will cross the bridge as it comes

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Anticipating BEPS India impact Survey Results€¦ · Insight 49% 8% 8% 33% 2% 12% 42% 30% 15% 1% Strongly agree Neither agree or disagree Strongly disagree Agree Disagree N/A. Anticipating