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

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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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Is your business ready to respond to BEPS

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Background The OECD has now reported back on all the action areas targeted as part of the base erosion proft shifting BEPS initiative. The project is moving toward its fnalization and implementation phases and many signifcant territories have already begun the process of implementing their domestic responses. Many of the specifc actions that make up the BEPS project give rise to tax risks within the operating holding and fnancing structures used by Indian multinational enterprises MNEs. 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 fnal BEPS recommendations. Some of these recommendations for example country-by-country reporting are likely to be introduced in India as early as February 2016. “We are strongly committed to a global response to cross-border tax avoidance and evasion so that the tax system supports growth- enhancing fscal strategies and economic resilience.” G20 http://articles.economictimes.indiatimes.com/2014-09-22/ news/54199227_1_tax-base-g20-tax-evasion

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The world after BEPS 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 Profts 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 profts 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 fnancing structures External pressures Relevance to the business model

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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.

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Access to Treaties Permanent Establishment Transfer Pricing Aggressive Tax Planning Increased Documentation Hybrid Mismatch Interest Deductions Control Foreign Corporations CFC Dispute Resolution  Limiting treaty access  Introduction of General/ Specific anti-abuse provisions  Increased focus on alignment between profits and substance  Broadening the Permanent Establishment concept  Impact on agent/ commissionaire arrangements  Consider transfer pricing for intangibles  Consider transfer pricing for risk and capital  Consider transfer pricing for other high-risk transactions • Disclosure of aggressive tax planning arrangements • Revisit holding company or hub companies structure • Countering harmful tax practices T ax rulings etc. • Possible changes to Parent-subsidiary directive • Country-by-country reporting • Automatic exchange of information between countries • Master file/local file • Re-examine transfer pricing documentation • Re-examine the approach toward dispute resolution  Increase in disputes post BEPS reforms  Greater use of Mutual Agreement Proceedings • Impact on hybrid arrangements/ instruments  Increase in local withholding taxes on such instruments/ arrangements  Limitation of interest deductions for debt funding • Impact on various financial instruments • Rebalance of capital structure v. supply chain • Introduction of new CFC rules in some countries • Strengthening of CFC rules where they exist currently • Impact on passive intercompany income 1 2 3 4 5 6 7 9 8 BEPS Business Impact Substance Transparency Coherence

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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 suffcient 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 proft 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.

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BEPS risk review: EY approach BEPS risk review Partner contacts 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 • Identifcation of specifc 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 signifcant intelligence based on proactive interaction with the Government of India on the BEPS initiative • EY’s Global BEPS response team who have signifcant 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 Ahmedabad Dhinal Shah + 91 79 6608 3850 dhinal.shahin.ey.com Bengaluru Rajendra Nayak + 91 80 6727 5454 rajendra.nayakin.ey.com Chennai Ashwin Ravindranath +91 44 6654 8512 ashwin.ravindranathin.ey.com Delhi Vijay Iyer +91 11 6623 3240 vijay.iyerin.ey.com Raju Kumar +91 124 671 4221 raju.kumarin.ey.com Himanshu Bhatia +91 124 612 1694 bhatia.himanshuin.ey.com Hyderabad Jayesh Sanghvi + 91 40 6736 2078 jayesh.sanghviin.ey.com Mumbai Keval Doshi + 91 22 6192 0650 keval.doshiin.ey.com Keyur Shah +91 22 6192 0970 keyur .shahin.ey.com Giselle H Barboza +91 22 6192 0735 giselle.barbozain.ey.com Pune Amit B Jain +91 20 6603 6160 amit.b.jainin.ey.com

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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 Y oung Global Limited Ernst Young LLP EY | Assurance | Tax | Transactions | Advisory

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