Latest Developments in International Taxation: formula sheet

Key formulas

Meaning of BEPS

BEPS = Base Erosion + Profit Shifting, achieved by using gaps and mismatches between tax systems

Write this first in any theory answer.

The 15 Actions

1 Digital economy | 2 Hybrid mismatch | 3 CFC rules | 4 Interest deductions | 5 Harmful tax practices | 6 Treaty abuse | 7 PE status | 8-10 Transfer pricing and value creation | 11 Measuring BEPS | 12 Mandatory disclosure | 13 TP documentation and CbCR | 14 Dispute resolution | 15 Multilateral instrument

Actions 8, 9 and 10 are usually grouped as transfer pricing outcomes aligned with value creation (intangibles, risks and capital, other high-risk transactions).

Four minimum standards

Action 5, Action 6, Action 13, Action 14

Memory hook: 5-6-13-14. Members are peer-reviewed on these.

Four themes of the project

Coherence (2, 3, 4, 5) | Substance (5, 6, 7, 8-10) | Transparency (11, 12, 13) | Certainty (14) | Standalone Actions outside these themes: Action 1 (digital economy) and Action 15 (MLI)

Do not confuse these themes with Pillar One and Pillar Two, which are later work on digitalisation. Use the grouping for structure, but focus on what each Action does.

Action 15 outcome

Action 15 = Multilateral Instrument (MLI) to update treaties quickly

The MLI modifies existing bilateral treaties without renegotiating each one.

Effective Tax Rate (jurisdictional)

ETR = Adjusted covered taxes of the jurisdiction ÷ Net GloBE income of the jurisdiction

Computed jurisdiction by jurisdiction, not entity by entity, and not for the whole group.

Top-up tax percentage

Top-up tax % = 15% − ETR (if ETR is below 15%)

No top-up tax if ETR is 15% or more.

Jurisdictional top-up tax

Top-up tax = Top-up tax % × Excess profit, where Excess profit = Net GloBE income − Substance-based income exclusion

The substance-based income exclusion is a carve-out based on payroll and tangible assets in the jurisdiction. It reduces GloBE income to excess profit, and top-up tax is computed on that excess profit. Add any additional current top-up tax if relevant.

Pillar Two threshold

Consolidated group revenue ≥ EUR 750 million in at least two of the four preceding years

Applies to the multinational group. Test as set out in the OECD model rules.

Order of collection

QDMTT (applied first and credited) → IIR (top-down) → UTPR (backstop)

The QDMTT reduces the top-up tax left for the IIR and UTPR. The IIR applies top-down from the parent. The UTPR collects any remaining top-up tax, allocated among UTPR jurisdictions by a formula based on employees and tangible assets.

Minimum rate

GloBE minimum rate = 15%; STTR minimum rate = 9%

Do not mix the two rates.

Amount A

Share of residual profit reallocated to market jurisdictions

Targets the very largest and most profitable groups. Do not quote a fixed percentage unless the question gives one.

SEP: transaction limb

Aggregate payments from transactions in India in the year > ₹2 crore

Covers goods, services or property carried out by the non-resident with any person in India, including download of data or software. The test is on the total of payments, and it applies whether or not the non-resident has a place of business in India.

SEP: user limb

Systematic and continuous soliciting of business activities or interaction with users in India > 3 lakh

The prescribed number of users is more than 3 lakh, so exactly 3 lakh users does not meet the limb. The activity must be systematic and continuous.

Income deemed to accrue or arise under SEP

Income deemed to accrue or arise in India = only the income attributable to the SEP transactions or activities

The whole global income is not taxed. The attribution is on the Indian transactions or activities that created SEP. This is a domestic law position, subject to treaty override.

Equalisation levy on online advertisement (withdrawn)

EL = 6% × amount paid to the non-resident

Applied to B2B payments by a resident carrying on business or profession, or a non-resident with a PE in India, if payments exceeded ₹1 lakh in the previous year. In force from 1 June 2016. Withdrawn for consideration received or receivable on or after 1 April 2025.

Equalisation levy on e-commerce (withdrawn)

EL = 2% × consideration received or receivable by the non-resident e-commerce operator, if that consideration in the previous year exceeded ₹2 crore

Under section 165A of the Finance Act, 2016 (inserted by the Finance Act, 2020), it applied to consideration for e-commerce supply or services made or provided to a resident; to a non-resident in specified cases, namely sale of advertisement that targets an Indian customer or a customer using an Indian IP address, and sale of data collected from a resident or a person using an Indian IP address; and to a person who buys such goods or services using an Indian IP address. It applied to a non-resident e-commerce operator only if the consideration received or receivable in the previous year exceeded ₹2 crore. Applied only from 1 April 2020 to 31 July 2024. Withdrawn from 1 August 2024.

Treatment of income covered by EL

Income from specified services or e-commerce supply on which EL is chargeable = exempt from income tax

This avoids double taxation. The exemption applies only where EL is actually chargeable, so only for the periods when the levy applied. It is not a general exemption for the non-resident's income.

What the MLI does

MLI + Covered Tax Agreement = modified treaty (only where both countries' choices match)

No change applies to a treaty if it is not listed by both parties, or if one party reserved the article.

Minimum standards

Article 6 (preamble) + Article 7 (treaty abuse) + Article 16 (MAP)

Every signatory must meet these. Optional articles are chosen individually.

Principal purpose test

Benefit denied if: arrangement exists + obtaining the benefit was one of the principal purposes + granting it is not in line with the treaty's object and purpose

The test is objective and fact-based. 'One of' the principal purposes is enough. It need not be the sole or main purpose.

Denial and the object-and-purpose exception

Benefit is denied if one of the principal purposes test is met, unless it is established that granting the benefit accords with the object and purpose of the treaty. Assess the facts first, then conclude.

Do not state that denial is automatic. State the facts first, then conclude.

Relationship with domestic law

Treaty relief is claimed under the domestic treaty-relief provision (section 90 and 90A of the Income-tax Act, 1961, or the corresponding provision of the Income-tax Act, 2025 where ICAI's applicability notice covers it), subject to GAAR and the PPT

Follow the Act and section numbering that ICAI prescribes for your attempt. Cite section 90/90A of the 1961 Act where it applies, and cite the corresponding provision of the 2025 Act only where ICAI's applicability notice covers it. MLI and domestic anti-avoidance rules can both apply. They are separate tests.

Master File threshold (both limbs for Part B)

Group consolidated revenue (preceding accounting year) > ₹500 crore AND [the Indian constituent entity's international transactions in the relevant accounting year > ₹50 crore OR its intangible-related international transactions in that year > ₹10 crore]

The ₹50 crore and ₹10 crore tests apply to the Indian constituent entity's own transactions, not to the whole group. Revenue limb is mandatory. Then either the ₹50 crore limb or the ₹10 crore intangibles limb must be met.

CbCR threshold

Consolidated group revenue in the preceding accounting year > ₹6,400 crore for a group with an Indian parent; > ₹5,500 crore (EUR 750 million equivalent) for a group with a foreign parent

The rupee figure depends on whether the parent is Indian or foreign. The rule says revenue must exceed the figure, so revenue exactly equal to it does not trigger CbCR. Check the current rule for the exact amounts.

Master File form

Form 3CEAA (Part A: basic details of the entity and group; Part B: the master file content)

Part A is filed by every Indian constituent entity of an international group, regardless of the thresholds. Part B is the full master file and is filed only when the thresholds are met. Both parts are due on or before 30 November following the end of the accounting year.

CbCR form

Form 3CEAD, filed by the parent entity or alternate reporting entity

Where the parent is outside India, an Indian constituent may have to file in specified situations. Form 3CEAB is a separate intimation by the Indian constituent entity giving details of the parent or alternate reporting entity (see the FAQ).

Master File due date

On or before 30 November following the end of the accounting year

This date applies to Parts A and B alike. For a year ending 31 March 2027, the due date is 30 November 2027.

CbCR due date

Within 12 months from the end of the reporting accounting year

For a year ending 31 March 2027, the due date is 31 March 2028.

Accountant's report (Form 3CEB)

Required for any international transaction or specified domestic transaction; due one month before the return due date (for TP cases, return due 30 November, so Form 3CEB is due 31 October)

Do not mix this with the Master File or CbCR. It is a separate compliance.

Quick revision

• BEPS means Base Erosion and Profit Shifting: tax planning that moves profits to low-tax places where little real activity exists.
• The Inclusive Framework brings many countries together to implement BEPS measures on equal terms.
• Pillar One reallocates some taxing rights over the profits of very large multinationals to market jurisdictions.
• Pillar Two aims at a global minimum effective tax rate on large multinational groups.
• Pillar Two works through rules that top up tax where the effective rate in a jurisdiction falls below the minimum.
• The Equalisation Levy was India's unilateral tax on digital and online transactions with non-residents (6% on online advertising and related specified services, 2% on e-commerce supply or services). The 2% levy was withdrawn from 1 August 2024 and the 6% levy from 1 April 2025; it is now historical context.
• FATCA is a US-led regime for reporting on accounts held by US persons.
• CRS is the OECD standard for automatic exchange of financial account information between participating countries.
• The MLI lets countries update many tax treaties together without renegotiating each one.
• Country-by-Country Reporting gives tax authorities a group-level view of income, tax and activity in each jurisdiction.
• The Master File gives a high-level overview of the group's global business and transfer pricing policies.
• Always link a development to the problem it solves; that structure earns marks in theory answers.

Common mistakes

• Listing a wrong set of minimum standards, for example including Action 7 or Action 15. Fix: Memorise 5-6-13-14. Action 7 and Action 15 are not minimum standards, although Action 6 is delivered mainly through the MLI.
• Saying that BEPS is illegal tax evasion. Fix: Say that BEPS strategies usually exploit gaps and mismatches in rules rather than break them. They are aggressive tax planning, not evasion.
• Treating Pillar One and Pillar Two as the same thing. Fix: Pillar One = reallocation of profit to market countries (Amount A). Pillar Two = 15% minimum tax (GloBE). Memorise this one-line split.
• Applying the 15% rate to the whole group or entity by entity. Fix: Compute the ETR jurisdiction by jurisdiction. Blend all entities in one country, then compare with 15%.
• Applying the 6% or 2% levy on payments made after the withdrawal dates. Fix: Always check the date of payment or consideration. Nothing is leviable on consideration received or receivable on or after 1 April 2025. The 2% levy stopped from 1 August 2024.
• Applying the 2% levy to a date before 1 April 2020. Fix: The 6% levy began on 1 June 2016. The 2% levy applied only from 1 April 2020 to 31 July 2024.
• Saying the MLI replaces or amends every Indian treaty automatically. Fix: State that only Covered Tax Agreements are modified, and only where both countries' notified choices match.
• Treating the PPT as requiring tax saving to be the sole purpose of the arrangement. Fix: Write that the test is met if obtaining the benefit was one of the principal purposes, subject to the object-and-purpose exception.
• Applying the CbCR revenue limit to the Master File Fix: Remember: Master File Part B starts at group revenue above ₹500 crore plus a transaction limit. CbCR applies when revenue exceeds ₹6,400 crore (Indian parent) or ₹5,500 crore (foreign parent).
• Treating the ₹50 crore test as optional on its own, ignoring the revenue limit Fix: Check revenue first. Without ₹500 crore group revenue, no Master File Part B arises even if transactions are large.

Exam tips

• Learn the table of 15 Actions by number and one-line aim. Many questions simply ask you to name and explain an Action.
• Memorise 5-6-13-14 as the minimum standards and be ready to say why each matters.
• In case-scenario MCQs, find the trick in the facts first and then choose the Action. Do not pick by the option that looks most familiar.
• In written answers, use a short structure: meaning, Action, aim, status, India link. Examiners give marks for each part.
• Do not quote section numbers or rates for India unless you are certain. A correct concept with plain wording is safer.
• Write the one-line split first: Pillar One reallocates profit to market countries; Pillar Two ensures a 15% minimum tax. It earns marks in short notes.
• For numerical MCQs, always test scope, then ETR, then top-up. Use only the figures and exclusions given in the question.
• In theory answers, name the rules in order: QDMTT, IIR, UTPR, and explain IIR vs UTPR in one line each. Mention that the UTPR is allocated by employees and tangible assets.