Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

India

India has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review) except for applying the “best efforts approach” for past rulings by using all information accessible to the tax administration (ToR I.4.2.2), for identifying potential exchange jurisdictions for all future rulings (ToR I.4.2.1), and the timely exchange of information on past and future APAs (ToR II.5.6). Two issues are continuing from the prior year peer review report. One additional recommendation made in the prior year peer review report has been addressed and this recommendation is removed. For the year in review, India is recommended to continue to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings, to ensure that all potential exchange jurisdictions are identified swiftly for all future rulings and to ensure that all information on past and future APAs is exchanged as soon as possible.

India can legally issue two types of rulings within the scope of the transparency framework.

In practice, India has issued 69 past rulings; for the period 1 April 2016 - 31 December 2016, India issued 55 future rulings; and for the year in review, India issued 73 future rulings within the scope of the transparency framework.1

Peer input was received from six jurisdictions in respect of the exchange of information on rulings. Five peers noted that the information received was complete and in the correct format. Three peers remarked that information on future rulings was received with delay, one peer noted that information on past rulings was received after 31 December 2017. One peer noted that it would be convenient to be informed about the period covered by the rulings, as India only indicated the financial year of the requesting taxpayer, which in India covers the period of 1 April to 31 March of the next year.

1. The number of future rulings was stated in the prior year report to have been 126, but had to be corrected as the former number contained an additional 71 rulings subsequently determined to be out of scope.

Introduction

557.  This peer review covers India’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

558.  India can legally issue the two following types of rulings within the scope of the transparency framework: (i) cross-border unilateral advance pricing agreements (APAs) and (ii) permanent establishment rulings. In India, two offices of the Central Board of Direct Tax (CBDT) issue APAs, and the Authority for Advance Rulings (AAR) is responsible for issuing PE rulings.PE rulings are published unless it is stated to be confidential by the Authority issuing the ruling, whereas unilateral APAs are not.1

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

559.  For India, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

560.  In the prior year peer review report, it was determined that the undertakings of the CBDT and the AAR to identify future rulings were sufficient to meet the minimum standard. However, India was recommended to apply the “best efforts approach” to identify the immediate parent and ultimate parent companies for all relevant past PE rulings and past APAs. In order to address this recommendation in the year in review, India gathered information available in the public domain such as search engines on the internet. However, for 19 rulings, neither the immediate nor ultimate parent jurisdiction could be obtained, and for 23 rulings either the ultimate parent jurisdiction or the immediate parent jurisdiction could not be identified. This means that out of 69 past rulings, in more than half of those cases one or more potential exchange jurisdictions could not be identified using the “best efforts approach”. As additional ownership information may be in the possession of or accessible to the tax administration, including through access to company incorporation databases and in tax return filings, India is recommended to continue to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings (ToR I.4.2.2).

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

561.  For India, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

562.  In the prior year peer review report, it was determined that the undertakings of the CBDT and the AAR to identify future rulings were sufficient to meet the minimum standard regarding the identification of rulings in scope. Since last year’s report, India had to correct the number of future PE rulings issued in 2016 from 77 to six. This was because 71 PE rulings were incorrectly identified as rulings in the scope of Action 5 by the field officers. The mistake was discovered in February 2017 when the Competent Authority received the templates for those rulings. In order to remedy the risk of incorrect identification in the future, the task of identifying the relevant category of the rulings together with completion of the templates has now been centralised and is now undertaken by the departmental representative in the AAR, who is aware of the facts in each case and the criteria of rulings in scope of Action 5. It is therefore determined that India meets the minimum standard regarding the identification of future rulings.

563.  In the prior year peer review report, India was recommended to proceed with the plan to amend the process for issuing future rulings in order to identify the immediate parent and the ultimate parent company, using definitions that are consistent with accounting or legal provisions in India’s domestic law. India has amended the application form for APAs and for PE Rulings to capture all necessary information with effect as of 16 June 2017 and 13 July 2018 respectively.

564.  For APAs and PE rulings issued before the amended application forms were introduced, India is continuing to use the “best efforts approach”. For 31 rulings, neither the ultimate parent nor immediate parent jurisdiction could be identified, and for 17 rulings either the ultimate parent jurisdiction or immediate parent jurisdiction could not be identified. India is recommended to ensure that all potential exchange jurisdictions are identified swiftly for all future rulings (ToR I 4.2.1).

Review and supervision mechanism (ToR I.4.3)

565.  In the prior year peer review report, it was determined that the review and supervision mechanism implemented by India was sufficient to meet the minimum standard. India strengthened its existing review process regarding PE rulings by having the Competent Authority also receive a copy of each ruling on a monthly basis so that the number of eligible rulings and the quality of the templates are cross verified to ensure accuracy. It is determined that India’s supervision mechanism continues to meet the minimum standard.

Conclusion on section A

566.  India has met all of the ToR for the information gathering process except for sufficiently applying the “best efforts approach” for past rulings (ToR I.4.2.2) and for identifying all potential exchange jurisdictions for future rulings (ToR I.4.2.1). India is recommended to continue to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings and to ensure that all potential exchange jurisdictions are identified swiftly for all future rulings.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

567.  India has the necessary domestic legal basis to exchange information spontaneously. India notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

568.  India is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”), (ii) double tax agreements and (iii) the South Asian Association for Regional Cooperation (SAARC) Agreement.2

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

569.  In the prior year peer review report, it was determined that India’s completion of templates were sufficient to meet the minimum standard. In order to complete the summary section, India notes that it provides all information required by the template in Annex C of the 2015 Action 5 Report (OECD, 2015), and in addition is considering the internal FHTP suggested guidance to see whether it is possible to incorporate it in the processes to complete the summary section in future.

570.  In the prior year peer review report it was noted that India experienced significant delays in providing information to the Competent Authority and therefore in the exchange of information on past rulings. It is noted that India exchanged information pertaining to the remaining 51 past rulings by June 2018 and experienced continuing delays in the exchange of all future APAs. To some extent, this delay is caused by the delay in identifying potential exchange jurisdictions, which is noted in Part A. Furthermore, there were delays in the centralised office in the Competent Authority due to the volume of past and future unilateral APAs that had to be verified for accuracy and exchanged. India expects that since all the past APAs have now been exchanged, it should now be possible to exchange future unilateral APA rulings within the time limit.

571.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	141	151	This relates partly to exchanges, which were delayed in 2016 and continue to be delayed and partly to additional exchanges that have been identified using the “best efforts approach”.	82 exchanges took place by May 2018; a further 22 past rulings cannot be exchanged due to confidentiality action plan/lack of exchange instruments; the 51 outstanding exchanges have been exchanged by June 2018.
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	5	196	11 of these exchanges relate to information which was delayed from 2016. In addition to the delays encountered identifying all potential exchange jurisdictions, additional delays were caused in the centralised office in the Competent Authority because of the volume of past and future rulings that had to be verified for accuracy and exchanged.	All outstanding 199 exchanges on future APAs were completed by 31 December 2017, four exchanges on future PE rulings have been exchanged by May 2018.
Total	146	347

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	5	90 days	0

572.  India introduced a new internal advisory for the process of issuing future APAs to ensure that all relevant information is transmitted in a timely manner to the Competent Authority. Officials issuing future APAs are advised to submit the template to the Competent Authority when the ruling is actually issued. This means that as soon as the ruling is issued, the Competent Authority has all information necessary to complete the exchange, and India expects the exchanges to occur within the prescribed timelines. The new process was introduced on 1 April 2018. India anticipates that after the introduction of the new process it will not experience more delays in the exchange of future APAs, and this will be reviewed in the subsequent peer review.

Conclusion on section B

573.  India has the necessary legal basis for spontaneous exchange of information. India experienced delays in the exchange of past rulings and in the exchange of all future APAs partly due to the time intensive identification of the potential exchange jurisdictions as noted in Part A, and partly because of the volume of past and future rulings that had to be verified for accuracy and exchanged. India amended its processes of providing information to the Competent Authority in early 2018. India is recommended to ensure that all information on past and future APAs is exchanged as soon as possible (ToR II.5.6).

C. Statistics (ToR IV)

574.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	N/A	N/A
Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	325	Argentina, Australia, Austria, Bangladesh, Belarus, Belgium, Brazil, Canada, Chile, China (People’s Republic of), Colombia, Croatia, Czech Republic, Denmark, Estonia, Ethiopia, Finland, France, Germany, Greece, Hungary, Iceland, Indonesia, Ireland, Israel, Italy, Japan, Jersey, Kazakhstan, Kenya, Korea, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Morocco, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Poland, Portugal, Russia, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Chinese Taipei, Thailand, Turkey, Tunisia, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Viet Nam
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	N/A	N/A
Permanent establishment rulings	9	Australia, Brazil, Mauritius, Singapore, Sri Lanka, United Kingdom, United States
Related party conduit rulings	N/A	N/A
De minimis rule	N/A	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	N/A	N/A
Total	345

D. Matters related to intellectual property regimes (ToR I.4.1.3)

575.  In the prior year peer review report, it was determined that the transparency requirements were not relevant for India’s intellectual property regime (“IP regime”) (Tax on income from patent regime):

• New entrants benefitting from the grandfathered regime: not applicable, as the regime is new and comprises no grandfathering clause.

• Third category of IP assets: not applicable, as this option has not been incorporated in the Indian IP regime.

• Taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption: not applicable, as this option has not been incorporated in the Indian IP regime.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
India experienced difficulties to identify immediate parent and ultimate parent companies for past rulings, even though India may have additional ownership information in its possession or this information is accessible to the tax administration, including through access to company incorporation databases and in tax return filings. This is a continuing recommendation from the prior year peer review.	India is recommended to continue to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings.
India experienced difficulties to identify immediate parent and ultimate parent for future rulings issued between 1 April 2016 until the new issuing procedures take effect. By introducing the new issuing procedures, which requires the taxpayer to provide all necessary information on potential exchange information, India has addressed the issue for future rulings which have been issued after the new issuing procedures come into effect. The issue is therefore limited to future APAs and PE rulings, where taxpayers have applied before the amended application forms were introduced.	India is recommended to ensure that all potential exchange jurisdictions are identified swiftly for all future rulings.
India experienced delays in the exchange of information on past and future APAs. This is a continuing recommendation from the prior year peer review regarding the exchange of APAs. Subsequent to receiving this recommendation in October 2017, India has addressed the delay in the exchange of rulings by amending the issuing procedure for APAs and PE rulings as of 16 June 2017 and 13 July 2018 respectively.	India is recommended to ensure that all information on past and future APAs is exchanged as soon as possible.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Transfer Pricing Documentation and Country-by-Country Reporting, Action 13 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264241480-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  Available at: www.aarrulings.in (accessed 20 November 2018).

← 2.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. India has bilateral agreements in force with Albania, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Bhutan, Botswana, Brazil, Bulgaria, Canada, China (People's Republic of), Colombia, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Faroe Islands, Fiji, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hungary, Iceland, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, Korea, Kuwait, Kyrgyzstan, Latvia, Libya, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Moldova, Mongolia, Morocco, Montenegro, Mozambique, Myanmar, Namibia, Nepal, Netherlands, New Zealand, Norway, Oman, Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, Sierra Leone, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Chinese Taipei, Tajikistan, Tanzania, Thailand, Trinidad and Tobago, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Viet Nam and Zambia. The SAARC was entered into force on 19 May 2010 and provides for exchanges with Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka.

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