Master files for fiscal year (FY) 2016-17 must be filed with the Indian Central Board of Direct Taxes (CBDT) by March 31, 2018.
In general, the filing deadline in India is at the end of each November following the reporting period at issue, but the CBDT has extended the initial deadline as a one-time relief measure.
Under BEPS Action 13, the OECD was charged with the development of rules regarding transfer pricing documentation to enhance transparency for tax administrations, taking into consideration the compliance costs for business. In response to this requirement, the BEPS Action 13 final report recommends a new three-tiered standardized approach to transfer pricing documentation. In particular, multinational enterprises (MNEs) would be required to prepare and submit the following three transfer pricing documents (subject to certain thresholds):
- A master file containing “high-level information” about their global business operations and transfer pricing policies that would be made available to all relevant tax administrations.
- A local file containing detailed transactional transfer pricing documentation that is specific to each country, disclosing (1) material related-party transactions, (2) the amounts involved in such transactions, and (3) the analysis of the transfer pricing determinations made with regard to such transactions.
- An annual country-by-country (CbC) report when the MNE group’s annual consolidated group revenue is at least €750 million, to (1) report the number of employees, stated capital, retained earnings, and tangible assets in each jurisdiction in which they do business; (2) identify each entity within the group doing business in a particular jurisdiction; and (3) provide an indication of the business activity in which each entity is engaged.
The annual CbC report is one of the four OECD minimum standards under the BEPS project. The master file and local file requirements are optional.
Section 92D of India’s Income Tax Act, 1961 (ITA) requires the maintenance of a master file by each constituent entity of an international group, with the manner and form to be promulgated by regulation by the CBDT.
On October 6, 2017, the CBDT released the guidance in draft form on the Indian CbC reporting and master file requirements for public consultation, with comments due by October 16, 2017. On October 31, 2017, the CBDT issued the final version of the foregoing documentation requirements in the Income Tax (Twenty-Fourth Amendment) Rules, 2017.
Finance Act 2016 authorized the CBDT to specify the details of the CbC reporting and master file requirements. India is inserting Rules 10DA (master file) and 10DB (CbC report) and Forms 3CEBA to 3CEBE into the 1962 Income Tax Rules (ITR), and providing guidelines for maintaining and submitting transfer pricing documentation in the master file and CbC report.
Each constituent entity of an international group is required to maintain information and documentation on the group if the following considerations are met:
- Consolidated revenue of the international group, of which such person is a constituent entity, exceeds INR 55 billion.
- Aggregate value of international transactions exceeds one of the following:
- INR 500 million during the reporting year.
- INR 100 million, in respect of the purchase, sale, transfer, lease or use of intangible property during the reporting year.
The master file will be filed each year on Form 3CEBA. The format of the master file generally aligns with the BEPS Action 13 recommendations, but will require certain additional information (e.g., research and development, intangibles, and financing arrangements). Accordingly, the master file should provide an overview of the multinational group business, its overall transfer pricing policies, and its global allocation of income and economic activity in order to place the group’s transfer pricing practices in their global economic, legal, financial and tax context.
Under Section 271AA of the ITA, the penalty for failure to provide a master file to the CBDT is INR 500,000.
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