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Transfer pricing: CBDT tightens reporting norms for MNCs

The Hindu Business Line |

02 November 2017

CBDT issues final rules for Master File and Country-by-Country reporting

The Central Board of Direct Taxes (CBDT) has notified the final rules for maintaining and furnishing of transfer pricing documentation in the Master File and Country-by-Country (CbyC) report.

This is largely in line with the draft rules issued for this purpose in early October this year, say tax experts.

It may also be recalled that the CBDT had recently extended the due date for furnishing of CbyC report for reportable accounting year 2016-17 (first reporting year) to March 2018.

Similarly, the date of compliance for furnishing the Master File for 2016-17 had been extended to March 31, 2018 as a one-time relief measure.

The final rules have now pegged the threshold for the CbyC report at total consolidated group revenue of ₹ 5,000 crore or more.

Also, the threshold for the Master File has been pegged at consolidated group revenue exceeding ₹ 500 crore and either the aggregate value of international transactions exceeding ₹ 50 crore or aggregate valur of international transactions in respect of intangible property exceeding ₹ 10 crore.

Amit Maheshwari, Partner, Ashok Maheshwary & Associates LLP, a CA Firm, said that the final rules are “largely similar” to draft rules except for changes in Form Number and other minor changes.

Tax and Regulatory Partner, BDO India said that despite representation from several quarters for increasing the consolidated group revenue threshold for Master File compliances, the same remains unchanged at ₹ 500 crore.

This is in contrast to the OECD recommendation and some other countries introducing Master file compliances , where the turnover threshold for Master File compliances is kept the same as CbyC (Euro 750 million recommended by OECD)

Amit Agarwal, Partner-Transfer Pricing, Nangia & Co LLP, said that the latest CBDT move to notify the final rules will pave the way for implementation of CbyC regulations for companies operating in India.

The notification of CbyC rules is likely to usher in a rigorous regime of compliance and disclosure for foreign MNCs working in India, he said.

The final rules spell out how and in which form the multinationals would have to comply with the maintaining and furnishing of transfer pricing documentation in the Master File (MF) and the CbyC report.

With the new rules, both inbound and outbound entities operating in India will have a fair bit of information to maintain and disclose, say tax experts.

The CbCR requirements are largely in line with BEPS Action Plan-13, with significant penalties in case of violations of the provisions, they added.

The Base Erosion and Profit Shifting (BEPS) measures were endorsed by G20 leaders in November 2015. The BEPS project had set out 15 key actions (of which CbCR is one, under Action Plan 13) to reform the international tax framework and ensure that profits are reported where economic activities are carried out and value created.

The OECD’s main objective of maintaining CbCR is to ensure that all relevant tax authorities have access to the same information about a multinational enterprise’s (MNE’s) group value chain and the resulting tax consequences.

CbCR will cover information about which entities do business in a particular jurisdiction and the business activity each entity engages in.

CbCR, which will be electronically transmitted between competent authorities, will assist tax administrators in having a complete understanding of the way in which MNEs structure their operations, by annually providing them with key information on the global allocation of incomes and taxes paid.