CBDT’s draft Master File and CbCR Rules – A mixed bag for Indian MNCs

October 10,2017
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Manisha Gupta (Partner, Transfer pricing, Deloitte Haskins & Sells LLP)

Ravi Gupta (Director, Transfer Pricing, Deloitte Haskins & Sells LLP)

The much awaited rules for Indian taxpayers pertaining to Country-by-Country Reporting (“CbCR”) and Master File (“MF”) have been proposed by the Indian Government which is fulfilling its commitment to implement the “minimum standards” agreed under Action Item 13 of OECD’s Base Erosion and Profit Shifting (“BEPS”) project, titled ““Transfer Pricing Documentation and Country-by-Country Reporting”.

Introduction of these draft rules for public discussion, is the logical next step to the amendments made in the Finance Act, 2016 to the Income Tax Act, 1961 (the “Act”) regarding the CbCR under Section 286 of the Act, and Master File under the amended Section 92D of the Act. The implementation of these new requirements has been awaiting introduction of relevant rules by the Indian Government, which have now been notified for public comments by October 16, 2017.

In this article, we have highlighted the impact of these rules on India-headquartered multinational groups (“Indian MNCs”)

The Headline

  • The headline is that the MF requirement has been introduced with much lower applicability thresholds as compared to those applicable to the CbCR, with an extended submission deadline of March 31, 2018 for FY 2016-17.
  • The CbCR requirement on the other hand, has not caused much of a surprise except that based on a plain reading of the draft Rules, the submission deadline for CbCR has not been extended in the draft Rules. The applicability threshold under the proposed Rule has been specified as INR 55,000mn, as compared to INR 53,950mn in the memorandum to Finance Bill, 2016 based on the prevailing exchange rates at that time.

The Requirements

Master File

As per the proposed Rule 10DA, the MF has to be furnished in Form 3CEBA (comprising Part-A and Part-B) by the prescribed due date of March 31, 2018 for FY 2016-17. Further, the applicability thresholds proposed in the said Rule are as follows:

  • The consolidated revenue of the international group exceeds INR 5bn in the immediately preceding accounting year and the value of international transactions for that entity during the reporting year either (i) exceeds INR 500 million in aggregate; or (ii) exceeds INR 100 million for international transactions involving sale, purchase, transfer, lease or use of intangible property

An entity which meets the above thresholds will need to furnish both Part-A and Part-B of the prescribed Form 3CEBA. However, it is interesting to note that all Indian entities that are part of an “International Group”, regardless of the above threshold, will still need to furnish Part-A of Form 3CEBA.

As per Section 286(9)(g) of the Act, an International Group has been defined to mean any group that includes,—

  • two or more enterprises which are resident of different countries or territories; or
  • an enterprise, being a resident of one country or territory, which carries on any business through a permanent establishment in other countries or territories

While the contents of the proposed MF are largely consistent with those under the OECD Action Item-13, the Indian MF will require some additional details such as:

  • list of all entities of the international group engaged in development and management of intangibles, along with their addresses
  • names and addresses of the top 10 unrelated lenders of the international group

Further, a threshold of 10 percent of revenue, assets and profits of the group has been proposed in Rule 10DA for constituent entities whose functional analysis needs to be described in the MF.

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