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Rashmin Sanghvi & Associates

Chartered Accountants

220, 2nd Floor, Arun Chambers,
Tardeo Road,
Mumbai - 400 034,
Maharashtra, India.

Tel. Nos.: (+91 22) 2351 1878, 2352 5694.

Fax : (+91 22) 2351 5275.

Email : [email protected]

Home Articles Taxation         Share :

Budget 2016Chapter E

Chapter E. Transfer Pricing:

12. Revised Transfer Pricing Documentation for MNEs: [S. 286]

12.1 Transfer Pricing (TP) provisions have been enshrined in the laws of major economies around the world for many years now. While the provisions have led to huge additions to taxable profits in many countries around the globe including India, the provisions have been dealt with by each country separately on a stand-alone basis.

12.2 Presently, MNEs have a chance to report different facts to tax authorities of different countries; or are required to share only specific details as required by that country’s tax law. This enables leakage of tax revenue.

As part of the Base Erosion and Profit Shifting (BEPS) Project of the G20, OECD was mandated to come out with recommendations for Action Plan on Transfer Pricing Documentation. The aim is to create a uniform standardised approach to Transfer Pricing documentation enabling countries to share the data submitted by global Multinational Enterprises (MNEs). OECD has issued its Final Report as part of its Action Plan 13 on “Guidance on Transfer Pricing Documentation and Country-by-Country Reporting”. The report recommends providing and maintaining documentation in a three-tiered format:

(i) a Master File containing standardised information relevant for all MNE group members;

(ii) a Local File referring specifically to material transactions of the local taxpayer; and

(iii) a Country-by-Country (CbC) report containing certain information relating to the global allocation of the MNE's income and taxes paid together with certain indicators of the location of economic activity within the MNE group.

12.3 India has taken an active part in the BEPS project; and as recommended in BEPS Report, India has introduced the revised documentation requirements.

The rules for local file containing details about transactions are already existing under the current Indian rules. The data for Master file is also provided under the current rules. The new provisions have enabled the tax department to specify what further data has to be maintained and to whom it will have to be furnished. This will be done by rules. As per the BEPS report, this Master file will have to be provided to each country where the MNE operates. This will be high level information about their global business and their Transfer Pricing policies.

The Country-by-Country report is the major change which the Finance Bill has proposed. This report has to be provided by the Holding Company in the group (usually the parent company) to the Government where that holding company is resident. Other governments will be able to access that information by requesting that Government. This is a major change in the documentation for Transfer Pricing.

All three reports combined will provide a tax officer the basic information to assess the areas where there may be Transfer Pricing issues. He will be able to take in to consideration the global structure of the MNE and the value addition made by it in India.

12.4 The Country-by-Country report has to be filed by the parent entity of the MNE group. The parent company can assign this responsibility to an alternative entity in the group. There is an apprehension that every company in India of a MNE group will have to file a CbC report. However that is not correct. There are two scenarios – i) where the parent company is an Indian resident (thus it is an Indian MNE like Tata group); and ii) where the parent company is resident outside India (thus it is a foreign MNE like Hindustan Unilever UK). These are discussed below.

12.5 Indian MNE - Primarily the CbC report has to be filed by the parent company where it is resident. Thus in case of Indian MNE, the parent company will be an Indian resident. Hence the parent company will have to file the CbC report with the return of income.

12.6 Foreign MNE - If the Indian company is group company of the foreign MNE whose parent company is outside India, it is that foreign parent company which will have to file the CbC with its tax department. In this situation, the Indian group company will internally have to provide the details to its foreign parent. However there is no statutory responsibility on the Indian companies.

However in the following situations, the Indian companies of foreign MNE group will have to file the CbC:

- If the parent company is in the country with which India does not have an agreement for exchange of information.

- If there is a systemic failure by the country with which India has an agreement for exchange of information, to provide the information required by India. In such a case India will notify the Indian entity to provide such information.


The Indian companies which are under the foreign parent company will have to file the details of the parent company and the country of which it is a resident. This will enable the Indian tax department to call for the information from the foreign Government.

12.7 The CbC report will require the entities to provide following information:

- revenue, profit & loss before Income-tax,
- amount of Income-tax paid and accrued,
- details of capital, accumulated earnings,
- number of employees,
- tangible assets other than cash or cash equivalent.

The above details will be required in respect of each country or territory along with details of each entity’s residential status, nature and detail of main business activity and any other information as may be prescribed. This shall be based on the template provided in the OECD BEPS report on Action Plan 13.

12.8 As the CbC reporting requirements are quite robust and time consuming, the BEPS Report has presently provided for a threshold of Euro 750 Million. Therefore, the CbC reporting will not be required unless the consolidated revenue of the MNE group for the preceding year does not exceed Euro 750 Million. The Memorandum to the Finance Bill provides that this limit will be expressed in Indian currency at the exchange rate as on the last day of FY 2015-16. At current rates, this threshold works out to around Rs. 5,656.50 crores.

However, it must be noted that reporting requirements in respect of Master File and Local File are not subject to this threshold.

The specific formats in which all the three reports need to be submitted will be also be prescribed under the Income-tax Rules.