Acting on its commitment to the OECD BEPS Action Plan, India has published the final guidance in relation to the requirements of multinationals to provide master file and country-by-country (CbC) reporting in India.

The guidance has been codified as newly inserted Rule 10DA and 10DB of the Income Tax Rules, 1962.

Master file

Multinationals operating in India that meet specific conditions are required to provide a master file to the Indian tax authorities. The conditions and timeframe for reporting are as follows:

Applicability Conditions

Threshold

Timeline

1. Consolidated group revenue for the accounting year exceeds

1. INR5 billion (US$77 million, subject to specific rules concerning exchange rate calculation)

For FY 2016-17 - to be filed on or before March 31, 2018

For subsequent years - to be filed on or before the due date for filing the annual tax return

AND

2. Aggregate value of international transaction: (A) During the accounting year exceeds OR (B) In respect of purchase, sale, transfer, lease or use of intangible property during the accounting year, exceeds

2. (A) INR500 million (US$7.7 million); OR

(B) INR100 million (US$1.5 million)

The master file needs to be filed in the prescribed format, and, in this respect, two statutory forms have been included: (1) Form No. 3CEAA and (2) Form No. 3CEAB. A general description of these forms follows:

Statutory Forms

Applicability

Nature of information

Form No. 3CEAA

Part A of the Form must be submitted by the Indian entity, irrespective of meeting the applicability conditions.

Part B of the Form must be submitted by the Indian entity, only if the applicability conditions are met.

Part A includes generic information such as group name, details of taxpayer, etc.

Part B includes information similar to details required for Action 13 of the BEPS Action Project.

Form No. 3CEAB

Provided there is more than one related Indian entity, this form must be submitted to inform the Indian tax authorities about the designated entity which will submit Form No. 3CEAA

Includes generic information and is required to be submitted 30 days before the due date of filing Form No. 3CEAA.

CbC report

India-based multinational groups are required to provide CbC reports to the Indian tax authorities. These CbC reports may be exchanged with specific partners with which India has concluded an information exchange agreement. The threshold for CbC reporting is set at consolidated group revenue of INR55 billion (US$850 million) of the preceding accounting year. This is generally in line with the threshold prescribed by OECD in Action 13 of the BEPS Action Plan.

Other specific requirements and the timelines for filing the CbC report that need to be adhered are as follows:

Category of entities

Requirement

Timeline

  • Parent Entity or Alternate Reporting Entity of a multinational group is an Indian resident

File CbC Report in Form No. 3CEAD. This form is similar to the CbC Report provided in Action 13

For FY 2016-17 - to be filed on or before March 31, 2018

For subsequent years - to be filed on or before the due date for filing the annual tax return

  • Constituent Entity that is an Indian resident and the Parent Entity or Alternate Reporting Entity is a foreign resident in a country where there is no information exchange agreement with India or there is a systemic failure

File CbC report in Form No. 3CEAD or inform Indian tax authorities (by filing Form No. 3CEAE) on the designated Indian entity that will file Form No. 3CEAD

For FY 2016-17 - to be filed on or before March 31, 2018

For subsequent years - to be filed on or before the due date for filing the annual tax return

  • In all other cases where a Constituent Entity is an Indian resident and the Parent entity is a foreign resident

File Form No. 3CEAC including information concerning:

  • Whether the Indian entity is the Alternate Reporting Entity or
  • The details of the Parent Entity or the Alternate Reporting Entity

At least 2 months prior to the due date of filing CbC report.

For FY 2016-17 - to be filed on or before January 31, 2018

Key takeaways

In essence, the final guidance of the Indian tax authorities on master file and CbC reports is largely consistent with the recommendations in Action 13 of the OECD BEPS Action Plan, although some Indian flavors have been added to it. In this regard, it is interesting to note that some information required to be furnished in the "Indian" version of a master file is more detailed as compared to Action 13 of the BEPS Action Plan.

The notable differences between the two are as follows:

Items

Master file: New Guidance

Masterfile: Action Item 13

Organizational Structure

List of all entities of the group along with their addresses

Chart illustrating the international group's legal and ownership structure and the geographical location of operating entities

Business information

Functional analysis of related entities that contribute at least 10% of the revenues or assets or profits of the group

Brief functional analysis describing the principle contributions to value creation by individual entities within the group

Intangibles

List of all entities of the group engaged in development and management of intangible property along with their addresses

No such requirement

Financial activities

Detailed description of financing arrangements of the group, including names and addresses of the top ten unrelated lenders

General description of how the group is financed, including important financing arrangements with unrelated lenders

It is also important to note that the threshold for providing a master file in India is quite low. The lower threshold could very well create a scenario in which a medium-sized multinational group would have to prepare a master file only to be compliant in India. In addition, the nature of information requested such as: functional analysis of entities contributing at least 10 percent of revenues or assets or profits or detailed description of financing arrangements including names and addresses of the top ten unrelated lenders would certainly lead to customisation of the global master file specifically for India.

The lower threshold for providing a master file, together with the extensive nature of information required to be provided, means that multinational groups operating in India could be facing increased compliance burdens as well as tax risks. It is important not only to keep track of the number of statutory forms that have been filed and their associated filing dates for compliance purposes, but also to ensure that the information in the master file is in conformity with other information that may have been provided in the tax returns or that is otherwise accessible to the Indian tax authorities through one of the information exchange mechanisms available in the post-BEPS environment.

As a result of increased transparency and associated transfer pricing risks, multinational groups would be well advised to make use of alternative dispute mechanisms such as the highly popular Advanced Pricing Agreement (APA) program. Since its introduction in 2012, the APA program has been widely regarded as a successful initiative which has decreased litigation and created a more taxpayer-friendly environment. According to the latest publicly available statistics, the Indian APA program has approved 152 APAs, 141 of which are unilateral and 11 of which are bilateral APAs. The use of this mechanism is likely to increase in the future.