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Alerts:

Transfer Pricing Alert - Final rules on Master File and Country-by-Country Reporting in India

03 November 2017

Indian Government Notifies Rules on CbCR and Master File Compliances

In line with the commitment to implement recommendations under the BEPS project of OECD-G20 Nations, the Indian Income Tax law was amended vide Finance Act 2016 to introduce Master File and Country by Country Report (CbCR) compliances from Fiscal Year (FY) 2016-17. After consultation with stakeholders, on 31 October 2017, the Central Board of Direct Taxes (CBDT) issued Rules 10DA and 10DB to implement and administer the compliance in relation to Master File and CbCR. The salient features of the Rules are tabulated hereunder:

PARTICULARS

MASTER FILE

COUNTRY BY COUNTRY REPORT

Who is required to maintain and furnish

Every Constituent Entity[1] of the International Group, including PE of the International Group in India, provided:

  • The consolidated group revenue of the International Group during the relevant accounting year exceeds INR 5 bn and
  • The Indian entity satisfies either of the following two conditions:
  1. Aggregate book value of international transactions with associated enterprises during the relevant accounting  year exceeds INR 500 mn; or
  2. The purchase, sale, lease or use of intangible as per books of accounts of the constituent entity during the relevant accounting year exceeds INR 100 mn

Note: TT Buying rate prevailing on the last day of the accounting year will be used for computing the INR value of consolidated group revenue reflected in foreign exchange.

 

 

When the Indian entity is the parent of the International Group :

  • Indian parent entity is required to maintain and furnish the CbCR, if the consolidated revenue of the International Group exceeds INR 55 bn during the accounting year preceding the reporting year.

When the Indian entity is the Constituent Entity of the International Group:

  • Constituent Entity of an International Group having a consolidated revenue of INR 55 bn during the preceding accounting year will be required to maintain CbCR only in following cases:
  1. Constituent Entity in India is the alternate reporting entity designated by the International Group to furnish the CbCR in India; or
  2. Parent entity is resident of a country with which India does not have an agreement to exchange CbCR; or
  3. There has been a systemic failure of the country of which parent entity is resident and the said failure is intimated by the Indian tax authorities to the Constituent Entity

Note: TT Buying rate prevailing on the last day of the accounting year preceding the accounting year will be used for computing the INR value of consolidated group revenue reflected in foreign exchange. 

Intimation  prior to filing / specifying the filing entity when multiple constituent entities in India

Constituent Entity designated by the International Group to intimate Director General of Income Tax (DGIT)  (Risk Assessment) in Form 3CEAB 30 days prior to due date of filing of Master FIle

Constituent Entity which is duly designated to file CbCR by the International Group (other than the alternate reporting entity or parent entity)  to notify in Form 3CEAE to DGIT (Risk Assessment)

Other Notification requirement

 

Every Indian Constituent Entity of the International Group having consolidated annual revenue exceeding INR 55 bn during the fiscal year preceding the reporting year needs to notify following to the DGIT (Risk Assessment) in Form 3CEACwithin two months prior to filing CbCR:

  • Whether it is an alternate reporting entity
  • The details of parent entity or the alternate reporting entity and the country of tax residence of such parent or alternate reporting entity

Relevant Form

Form 3CEAA

Form 3CEAD

Due Date of fling

Within due date of filing of Return of Income. However, for FY 2016-17 the due date is extended to 31 March 2018

Relevant Indian Tax Authority

DGIT (Risk Assessment)

Contents

Briefly stated the contents include :

  • List of all the operating entities of the International Group with address and ownership structure
  • A description of Functions performed, Assets employed, Risk assumed (FAR) of the all the Constituent Entities of the group contributing at least 10% of revenue, assets or profits of the International Group
  • Nature of the businesses of the International Group with profit divers and  supply chain
  • Intra-group services arrangements
  • Details regarding group intangible strategy and principal R&D locations etc
  • Transfer pricing policies regarding R&D and intangibles
  • Details of financing arrangement and TP policies
  • Annual Consolidated Financial Statements
  • A list of all existing unilateral APA

The contents and the template of the CbCR are in line with Action Plan 13. The template is divided in three Tables.

  • Table I of the template requires the taxpayer to report the amount of revenue, profit, taxes accrued and paid, employees, stated capital retained earnings and tangible assets for each tax jurisdictions.
  • Table II contains list of all Constituent Entities of the International Group in each tax jurisdictions and description of the main business activities.
  • Table III requires the taxpayer to give additional information in respect of numbers reported, re-conciliation or explanation etc.

 

 

[1] Constituent Entity of the International Group in India means any entity of the International Group in India whose accounts is included in Consolidated Financial Statement.

With the Rules now notified, International Groups now have a clear roadmap for Transfer Pricing compliances in India. With different thresholds for Master File and CbCR compliances, Indian Constituent Entities would be well advised to determine their filing responsibilities and attached due dates.

Should you or your group need any help or assistance on your Transfer Pricing compliances do get in touch with our Transfer Pricing Experts or at BDO India.