As a measure of safeguard against base erosion and profit shifting (BEPS) by Multinational Enterprises (MNEs) and following the Action Plan 13 of OECD, of which the India is a member country, the amendment was made recently in the Income Tax Act mandating the maintenance and furnishing of Master File and filing of Country-by-Country Report (CbCR).
The draft rules for public discussion relating to the said amendment were notified on 6th October 2017.
Following are some of the key points to be noted:
Documentation / Maintenance of Master file
Who should maintain details?
Constituent entity of international group should maintain the specified documentations. However, this provision is attracted only when following two conditions are satisfied:
What has to be maintained in master file?
Certain primary details to be maintained are as follows:
Major emphasis is placed on understanding the business of the group and consequently following business-related details are to be maintained:
One of the major concerns of the government is taxing the transaction involving intangible property since the risk of manipulation is high in such transactions involving non-visible but high value assets. Therefore, the draft rules have mandated maintaining detailed information involving intangible properties:
The finance related details to be maintained are as follows:
Furnishing of details maintained in the Master file
When details are to be furnished?
The information referred above has to be furnished on or before 30th November following the financial year. However, for FY 2016-17, due date is 31st March 2018.
Who has to furnish details?
If the constituent entity satisfies the condition for maintenance of the master file, then it has to furnish all the details in the specified form. However, even if the constituent entity does not satisfy the condition for maintenance of master file, it has to furnish the basic details of the master file within the due date mentioned above.
If there are more than one constituent entities in India, the international group has to designate any one entity for this responsibility and notify the income tax authority atleast before 30 days of filing of specified form
Country-by-country report (CbCR)
The CbCR has to be furnished by the parent entity of international group or the alternate reporting entity. The alternate reporting entity is any other constituent entity of the group designated for filing of CbCR. In such cases, CbCR has to be filed by such alternate reporting entity.
However, CbCR provisions will not be applicable if consolidated group revenue of preceding financial year does not exceed Rs. 5,500 crores.
Case 1: If parent entity is non-resident in India
If the parent entity of the international group is non-resident, the constituent entity resident in India has to notify whether it is the alternate reporting entity, on or before 1st October every year.
If it is not an alternate reporting entity, then it has to notify the income tax authority about the details of parent or alternate reporting entity and the countries in which they are residents, on or before 1st October every year.
If the constituent entity resident in India is an alternate reporting entity, then it has to file CbCR on or before 30th November succeeding the financial year to which it pertains.
Case 2: If parent entity is resident in India
If the parent entity of the international group is resident, then it has to file CbCR on or before 30th November succeeding the financial year to which it pertains.
However, if the international group has designated the alternate reporting entity, then CbCR in India is to be filed if such alternate reporting entity is also resident in India.
Details to be furnished in CbCR
The tax jurisdiction-wise details are to be furnished for the international group as a whole in the specified form of CbCR. The notified details as per the specified form are as follows:
In addition to above details, the tax jurisdiction-wise name of constituent entities and its main business activity is also to be reported.
Also, unlike most of the forms in income tax, the additional space is provided to include any further brief information or explanation that is considered necessary or that would facilitate the understanding of the information provided in the form.
The above-mentioned amendment and the notification, has provided tax authorities with great extent of information which can be analyzed effectively to ensure bona fide tax payment by the MNEs. However, it also adds to the transfer pricing compliance by the MNEs, who will now need to be extra-vigilant while undertaking the international transactions with their Associated Enterprises to avoid any adverse impact.
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Disclaimer: This article is for the purpose of general awareness and does not represent professional opinion of the author.