India: CBDT Releases The Draft Master File And Cbcr Rules – Global Transfer Pricing Documentation Is A Reality Now

Last Updated: 20 October 2017
Article by SKP  

In what is considered to be one of the most fundamental changes in the international tax framework of this century, the Base Erosion and Profit Shifting (BEPS) project of the OECD/G20 had provided for a three-tier transfer documentation structure consisting of a Master File, Local File and Country-by-Country Report (CbCR) under Action plan 13.

To demonstrate India's commitment to the BEPS Action Plans, the Indian Finance Act, 2016 has adopted OECD's framework and the revised transfer pricing documentation and CbC reporting is made effective from the Financial Year (FY) 2016-17. However, the exact contours and rules with respect to the CbCR and Master File requirement were much awaited by the multinational groups.

Now, the Central Board of Direct Taxes (CBDT–the direct tax administering body in India) has published the draft rules and forms with respect to applicability and details required in the Master File and CbCR on 6 October 2017. The CBDT has sought for recommendations from the stakeholders till 16 October, post which, the rules shall be finalised. Considering the importance and far-reaching implications of this development, we are summarising the draft rules and sharing our comments in the paragraphs below.

Master File

  • Applicability
    The Master File requirement is applicable to the Indian entity of a multinational group that satisfies the following two conditions:

    • The consolidated revenue of the group exceeds INR 5,000 million (approximately USD 75 million); and
    • The aggregate value of international transactions of the Indian entity exceeds INR 500 million (USD 7.5 million) or aggregate value of international transactions in respect of intangible property exceeds INR 100 million (USD 1.5 million).

  • Contents of Master File
    Notably, as per the draft rules, information in Part A of the form for Master File shall be furnished by every Indian entity of an international group irrespective of the threshold. Information in Part B of the form is furnished by the Indian entity of an international group, who qualifies the above threshold for maintenance of Master File.

    Information to be captured in Master File is quite exhaustive and although there are few differences, these are mainly in line with OECD's recommendations under Action Plan 13. The details required can be broadly categorised under following heads:

    • Organisation Structure of the group.
    • Description of group's overall businesses (including names and addresses of the group entities).
    • Description of the functions, assets and risk analysis of all constituent entities that contribute at least 10% of the revenues, assets and profits of the group.
    • Details about intangibles (including group strategy for intangibles) and transfer pricing policies.
    • Transfer pricing policies for inter-company financial activities.
    • Details about cost allocation arrangements and transfer pricing policies.
    • Details about financial and tax positions of the group.

  • Timeline for furnishing with the Indian tax authority
    Master File shall be filed for every accounting year (based on the applicability) on or before the due date for furnishing the return of income. However, for FY 2016-17, Master File maybe furnished at any time on or before 31 March 2018.
  • Notification Report by a constituent entity designated to file Master File
    In case of more than one constituent entity resident in India, Master File may be furnished by that constituent entity designated by the international group to furnish the said report. The same has to be notified by the international group or the designated constituent entity to the CBDT at least 30 days before the due date of filing the Master File, which would be 1 March 2018, for FY 2016-17.


  • Applicability
    Every parent entity or the alternate reporting entity, as the case may be, resident in India, shall, for every reporting accounting year, furnish the CbCR on or before the due date for furnishing the return of income i.e. 30 November.

    The CbCR shall not apply in respect of an international group for an accounting year, if the total consolidated group revenue, as reflected in the consolidated financial statement for the preceding accounting year does not exceed INR 55,000 million (USD 825 million/EUR 715 million).
  • Notification report by the Indian entity of a non-resident international group
    The Indian entity, if its parent entity is not resident in India, should notify the Indian tax authorities whether it is the alternate reporting entity of the international group or the details of the parent entity or the alternate reporting entity, as the case may be, of the international group and the country or territory of which the said entities are resident. Such notification shall be made on or before 60 days prior to the due date of furnishing the CbCR. Notably, the notification timeline as per the draft rules is already elapsed for FY 2016-17 considering the due date for furnishing the CbCR is not changed i.e. 30 November and therefore a revision/clarification is expected from the CBDT.
  • Filing of CbCR by the Indian entity
    The Indian entity of the international group would have to furnish the CbCR if the parent entity is a resident of a country with which India does not have an agreement providing for the exchange of the report or there has been a systemic failure of the country and the said failure has been intimated to the Indian entity.

    However, if there are more than one constituent entities of an international group, resident in India, then the CbCR may be furnished by the designated entity in India.
  • Contents in the CbCR

    The CbCR template is in lines with OECD's BEPS Action 13 Final Report and includes key business, economic and financial indicators about the group. The primary details required to be included in the CbCR are as follows:

    • Tax jurisdiction wise: Amount of revenues, profit and loss before tax, income tax paid and accrued, stated capital and accumulated earnings, number of employees, and tangible assets (other than cash and cash equivalents).
    • For all the entities in the group, nature and details of the main business activity.

SKP's comments

  • The threshold of INR 5,000 million for preparing and filing Master File could be very low, especially for the product, infrastructure and other volume-based businesses and would attract additional analysis and documentation efforts on the part of these multinational groups.
  • The Master File rules would require preparation and submission of the Master File in India for the entire global business operations, even though several jurisdictions may not actually have any requirement to prepare Master File under the laws of the respective countries. For example, a US-headquartered multinational group where preparation of Master File is not applicable as per the present provisions would still be required to comply with the Master File requirements from India's transfer pricing regulations perspective.
  • Where the taxpayers have already prepared the Master File to comply with the requirements of other countries, it would be essential for them to align the details as per the Indian Master File requirements.
  • Where no work on Master File has been performed within the group, the Indian entities should start collating details required for preparation of Master File.
  • The Master File and Master File will provide tax authorities with considerable information of the entire group including details of inter-group transactions, global transfer policies, functional analysis of the majority of the group entities, etc. Considering the sensitive and vast nature of these details, it is imperative for businesses to gear up fast and start working towards Master file and CbCR (if either or both are applicable) so as to avoid any adverse consequences.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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