Introduction Multinational companies (MNCs) operate in multiple countries, which makes it difficult for tax authorities to track their financial transactions and ensure proper tax compliance. To address this issue, Section 286 of the Income Tax Act was introduced in 2017, which requires MNCs to report their global revenue, profits, taxes paid, and other related information to the Indian tax authorities. In this article, we will focus on Section 286(2) of the Income Tax Act and understand the reporting requirements for MNCs.
What is Section 286(2) of the Income Tax Act?
Section 286(2) of the Income Tax Act requires every constituent entity of an MNC group to furnish a report to the Indian tax authorities if the group meets certain prescribed criteria. The report should contain specific details regarding the global operations of the MNC group.
Who is required to furnish the report? Every constituent entity of an MNC group that meets the following criteria is required to furnish the report under Section 286(2):
- The group has consolidated group revenue of more than INR 6,500 crore in the previous financial year.
- The group has at least one constituent entity in India.
- The reporting parent entity is not resident in India.
What is a Constituent Entity?
As per Section 286(1)(b) of the Income Tax Act, a constituent entity is any entity that forms part of an MNC group for financial reporting purposes. This includes subsidiaries, branches, joint ventures, partnerships, and any other entity that is controlled by the MNC group.
What information is required in the report? The report should contain the following information:
- The global revenue of the MNC group.
- The global profits of the MNC group.
- The total taxes paid by the MNC group.
- The total number of employees in the MNC group.
- The tangible assets of the MNC group.
- A list of constituent entities of the MNC group and their country of residence.
- A description of the business activities of the MNC group.
When is the report required to be furnished?
The report is required to be furnished within 12 months from the end of the reporting accounting year of the MNC group. For example, if the reporting accounting year of the MNC group ends on 31st March 2023, the report must be furnished by 31st March 2024.
What is the penalty for non-compliance? If an MNC group fails to furnish the report or furnishes an incorrect report, the Indian tax authorities may impose a penalty of INR 5 lakh. In addition to the penalty, the tax authorities may also conduct a transfer pricing audit of the MNC group.
Conclusion
Section 286(2) of the Income Tax Act is an important provision that requires MNCs to report their global operations to the Indian tax authorities. By mandating such reporting requirements, the Indian tax authorities aim to ensure transparency and prevent tax evasion by MNCs. MNCS must comply with these reporting requirements to avoid penalties and other legal consequences.
Frequently Asked Questions:
What is the purpose of Section 286(2) of the Income Tax Act?
Section 286(2) of the Income Tax Act requires multinational companies (MNCs) to report their global revenue, profits, taxes paid, and other related information to the Indian tax authorities. This provision aims to promote transparency in MNCs’ financial transactions and ensure proper tax compliance.
Which MNCs are required to furnish the report under Section 286(2)?
Every constituent entity of an MNC group that meets the following criteria is required to furnish the report under Section 286(2):
- The group has consolidated group revenue of more than INR 6,500 crore in the previous financial year.
- The group has at least one constituent entity in India.
- The reporting parent entity is not resident in India.
What is a constituent entity?
As per Section 286(1)(b) of the Income Tax Act, a constituent entity is any entity that forms part of an MNC group for financial reporting purposes. This includes subsidiaries, branches, joint ventures, partnerships, and any other entity that is controlled by the MNC group.
What information is required in the report?
The report should contain information such as the global revenue and profits of the MNC group, total taxes paid, number of employees, tangible assets, a list of constituent entities, and a description of the business activities of the MNC group.
When is the report required to be furnished?
The report is required to be furnished within 12 months from the end of the reporting accounting year of the MNC group.
What is the penalty for non-compliance?
If an MNC group fails to furnish the report or furnishes an incorrect report, the Indian tax authorities may impose a penalty of INR 5 lakh. In addition to the penalty, the tax authorities may also conduct a transfer pricing audit of the MNC group.
