Multinationals get ready for BEPS, start impact analysis and mock runs

Mumbai: Fearing that they may end up paying more taxes in India, several multinationals are preparing themselves for base erosion and profit shifting ( BEPS) under which they would be required to submit all the profits and revenues they make in each country they operate.

Many multinationals, including Indian companies with a global presence, are also going ahead with impact assessment to identify and fix potential problems in their tax reporting when India starts implementing new international standards to check tax avoidance by multinationals. Some of the action points under the BEPS guidelines would come into force in India by April 1 this year.

The Organisation for Economic Co-operation and Development ( OECD) has already released BEPS proposals, which include new standards of country-by-country reporting, to check the various tactics multinationals play to avoid and reduce taxes they pay. Companies are doing mock runs in which they collect all the data and present it to their tax planners who points out problem areas in the reporting, say experts.

There is also a worry that Indian tax authorities may take an aggressive stance and trigger transfer pricing adjustments on certain transactions. This could happen if it is learnt that some of the multinationals may be shifting profit or revenues outside India and escaping domestic taxes.

Beginning April, every multinational would be required to disclose profits it makes from each and every country and the number of people they hire in these locations. Some industry trackers said implementation of BEPS could lead to more litigation between the companies and the revenue authorities.

OECD has estimated that national exchequers are suffering revenue losses of $240 billion a year, or 10% of global corporate income tax receipts, due to tax avoidance practices of multinationals.