Final rules on Master File and CbCR in India – Tackling the practical challenges

November 06,2017
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Vaishali Mane (Chartered Accountant, Mumbai)

Gaurav Jain (Chartered Accountant, New Delhi)

India’s alignment with Action Plan 13 of Base Erosion and Profit Shifting (‘BEPS’) initiative of Organisation for Economic Cooperation and Development (‘OECD’) was well received by the transfer pricing fraternity including the revenue department. This move on one hand, gave perspective to multinational enterprises for aligning group transfer pricing policies, and on other, prescribed yardsticks for the revenue authorities to effectively identify risk and conduct informed tax assessments.

Though furnishing of Country by Country Reporting (‘CbCR’) in line with OECD was introduced vide Finance Act 2016, detailed rules governing CbCR and Master File (‘MF’) were recently issued on 31 October 2017 (draft rules issued on 6 October, 2017).

This article is structured to give an overview of the final rules issued by Central Board of Direct Taxes (‘CBDT’) and highlight the differentiation between Indian guidelines vis –a – vis OECD and regulations in other jurisdictions. Practical challenges in implementation and what road lies ahead for Indian taxpayers have also been deliberated in paragraphs below.

CbCR and MF in India – Final Rules

The final rules are in principle same as the draft rules issued last month and retain the applicability thresholds communicated in the earlier version.

CbCR

This is to be prepared by an international group having consolidated turnover exceeding INR 5,500 crore (Euro 730 million) during the preceding accounting year. In case the ultimate parent entity is not resident in India, each Indian constituent entity (‘CE’) is required to intimate the tax authorities two months prior to 31 March 2018 for accounting year 2016-17.

MF

International groups with consolidated revenue of INR 500 crore (Euro 67 million) and individual CEs with international related party transactions of INR 50 crore (Euro 7 million) [INR 10 crore (Euro 1 million) in case of transactions related to intangibles] are required to file MF on or before 31 March 2018 for accounting year 2016-17. However, Part A of the form is required to be filed by a designated CE of international group irrespective of the prescribed thresholds.

CbCR and MF - India vis- -vis OECD

CbCR

The contents of the prescribed CbCR form and the three tables are the same as that recommended by OECD guidelines.

MF

The following table captures the additional requirements prescribed by CBDT in respect of MF:


MF Requirement

India - As per Final Rules

As per OECD

Organization structure

List of all entities of the group along with their addresses

Chart illustrating the MNE’s legal and ownership structure and geographical

location of operating entities

Description of MNE’s business

Functions, assets and risks analysis of entities contributing at least ten percent of the group’s revenue or assets or profits

Functions, assets and risks analysis describing the principal contributions

to value creation by individual entities within the group

MNE’s Intangibles

List of ‘all’ the entities of the group engaged in development and management of intangibles with their addresses

No such requirement

List of important intangibles of the MNE Group along with names and addresses of the entities that legally own them

List of important intangibles of the MNE Group and names of entities that legally own them

MNE’s intercompany financial activities

Names and addresses of the top ten unrelated lenders

Description of important financing arrangements with unrelated lenders.

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