The Central Board of Direct Taxes (CBDT) had released draft rules for Master File and Country-by-Country Report (CbCR) requirements on 6 October and has requested for comments from the public.
To know more about the provisions in the draft rules, please click here.
On 31 October, the CBDT notified the final rules laying down the applicability criteria and requirements for maintaining and furnishing the enhanced transfer pricing documentation requirements in the nature of Master File and CbCR. Notably, there were a few suggestions, including a major concern that the threshold of INR 5 billion was quite low for Master File applicability. However, the provisions in the final rules are largely in line with the provisions stipulated in the draft rules.
In this alert, we have summarised a comparison of the key points from the final rules and draft rules for your reference.
- Quantum-wise threshold: No change vis-a-vis the draft rules.
- Year of applicability for the threshold of INR 5 billion in case of Master File: Changed from immediately preceding Financial Year (FY) to accounting year.
- Timelines: Small change on timelines with respect to CbCR reporting for multiple entities.
- Forms: Form numbers have been changed and have been sequentially aligned.
- Format of forms: No major change except a new column of 'Administrative, management and support services' as one of the business activities forming part of the form for CbCR (Form 3CEAD), in line with the format prescribed by the Organisation for Economic Cooperation and Development (OECD).
- Master File: As per the final rules, a list of all entities (along with addresses) in the international group, instead of all the operating entities (as mentioned in draft rules), needs to be maintained in the Master File. It is important to note that there is no change with respect to the requirement of filing information in Part A of Form 3CEAA by every entity, being a constituent entity of an international group, whether or not the threshold for maintenance of Master File is satisfied.
- Conversion rate: In order to determine the applicability of the Master File and CbCR threshold limits, the final rules prescribe that the telegraphic transfer buying rate as on the last day of the accounting year for the Master File and the last day of the accounting year preceding the accounting year in the case of CbCR is to be considered for the conversion of foreign currency-denominated consolidated group revenue into INR.
The summarised provisions as per the final rules are:
Applicability of Master File:
| Particulars | Threshold | Data to be considered for FY 2016-17 |
| Consolidated revenue of International Group | INR 5 billion | Accounting year i.e. FY 2016-17 |
| AND | ||
| Aggregate value of international transactions | INR 500 million | Accounting year i.e. FY 2016-17 |
| OR | ||
| Aggregate value of international transactions relating to purchase, sale, transfer lease or use of intangible property | INR 100 million | Accounting year i.e. FY 2016-17 |
Applicability of the CbCR:
| Particulars | Threshold | Data to be considered for FY 2016-17 |
| Consolidated revenue of International Group | INR 55 billion | Preceding accounting year i.e. FY 2015-16 |
Key forms and timelines:
Master File:
| Particulars | Form as per the Final Rules | Timelines as per the Final Rules |
|---|---|---|
| Single constituent entity of the group in India | Form No. 3CEAA (Part A & B) |
For FY 2016-17
– To be filed on or before 31 March 2018 For subsequent years, to be filed on or before the due date for filing of Return of Income (30 November) |
| Multiple constituent group entities in India | Form No. 3CEAB | 30 days prior to the date of filing of Master File (for FY 2016-17, the timeline is on or before 1 March 2018) |
CbCR:
| Particulars | Form as per the Final Rules | Timelines as per the Final Rules |
|---|---|---|
| Intimation of details of parent entity/alternate reporting entity which will file the CbCR | Form No. 3CEAC |
2 months prior to
furnishing the CbCR (instead of 60 days as mentioned in the draft
rules) For FY 2016-17, the due date is 31 January 2018 (refer to the point below) |
| Filling CbCR - Every parent entity or the alternate reporting entity resident in India | Form No. 3CEAD |
The due date for
furnishing the CbCR is on or before the due date for filing of
Return of Income for the relevant accounting year. However, as per Notification No. 26/2017 dated 25 October 2017, the due date for furnishing of the CbCR for FY 2016-17 has been extended to 31 March 2018 by the CBDT. |
| Intimation of multiple constituent group entities in India | Form No. 3CEAE | No timeline mentioned in the rules. This needs to be clarified by the CBDT. |
Penalties
From a comprehensive understanding perspective, the penalties prescribed in the Indian Income Tax Act, 1961 with respect to the failure to furnish the enhanced transfer pricing documentation are as follows:
- Failure to furnish information and documentation under the proposed three-tier documentation structure by the due date will attract a penalty of INR 500,000; and
- Failure to furnish the CbCR involves the following graded penalties:
| Particulars | Delay up to one month | Delay beyond one month | Delay in payment of penalty even after penalty order |
| Failure to furnish the CbCR by the due date | INR 5,000 per day | INR 15,000 per day | INR 50,000 per day |
| Inaccurate information filed under the CbCR | INR 500,000 | ||
SKP's comments
Now that the rules are finalised and 31 March 2018 - the due date for the first compliance for Master File and CbCR for FY 2016-17 is only four months away, multinational companies operating in India (inbound and outbound) are advised to take following steps in a timely manner:
- Determining the applicability of Master File and CbCR related requirements for the Indian entity.
- Comply with the intimation requirements within the prescribed timelines.
- The Indian headquartered groups, where no work on Master File/CbCR might have been performed within the group, should start collating details required for preparation of the Master File/CbCR.
- Where the group has already prepared the Master File to comply with the requirements of other countries, align the details as per the Indian Master File requirements.
- Start collating the CbCR in case the Indian entity is to be considered as an alternate reporting entity for the group or the parent entity is a resident of a country with which India does not have an agreement for the exchange of the CbCR.
Considering the far-reaching implications of this development, we will be conducting a webinar that will discuss these enhanced documentation requirements, its foreseeable effects and a few select strategies that could be useful for multinationals (inbound as well as outbound) to navigate these requirements effectively.
We invite you to join us by registering at the link below. We hope you will find the webinar interesting and useful.
https://attendee.gotowebinar.com/rt/4522658948382425346
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.
