Additional reporting by Multinational companies – Transfer pricing

  • The OECD had devised many action plans to combat BEPS. OECD also recommended a three-tier documentation approach for transfer pricing under Action Plan 13.

Three tier documentation

Three Tier
Three Tier 1

Advantages of three tier reporting

Three Tier Reporting
  • Elements of CbC and Master File reporting requirement and related matters have been incorporated in the Section 286 of the Act.
  • This reporting shall be applicable in respect of an international group for an accounting year if the total consolidated revenue as reflected in the CFS for the accounting year preceding year is above the threshold limit.

Key terms to understand

  • There are certain terms which are repeatedly used in this section.
Keyterms
Keyterms 1
Keyterms 2
Keyterms 3
Keyterms 4

Significant aspects of Master File

Significantaspects
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Significantaspects 2
  • If an entity is CE of a IG, then Part A of Form 3CEAA which contains minimum disclosures are mandatory. If the IG’s consolidated turnover exceeds Rs 500 crore, then filing of Part B becomes mandatory if the international transaction of the CE exceeds certain threshold.
Significantaspectsmf
Significantaspectsmf 1
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Country by Country Reporting (‘CbCr’)

Cbcr
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  • The rate of exchange for the calculation of the value in rupees of the consolidated group revenue in foreign currency shall be the telegraphic transfer buying rate of such currency on the last day of the accounting year
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  • “Telegraphic transfer buying rate” shall have the same meaning as assigned in the Explanation to rule 26;

Contents in Master File and CbCr

  • As the name suggests the contents of the Master file are not likely to change very rapidly and provides the direction and long term planning of the international group.
  • Part A of the Form 3CEAA (which has to be complied by every CE in India which part of the International group) contains basic details such as Name, address, Tax identification number, accounting year of the international group, number of CEs operating in India and their details
  • Part B contains further details which is applicable if the consolidated turnover exceeds Rs 500 crores and international transaction of the CE
    • Exceeds Rs 50 crores; or
    • Aggregate value of international transaction is more than Rs.10 crores in respect of purchase, sale, transfer, lease, or use of intangible property
Contents Cbcr
Contents Cbcr 1
Contents Cbcr 2
  • Contents of CbC Report provide a snapshot of the financial performance, employment details of the international year during the relevant accounting year. While master file provides the policy decisions of the group, the CbCr would give an idea how the policies have been implemented and the business results for the accounting year. CbC reports details in a tabulated form.
  • Apart from the details such as name, Address, PAN of reporting entity, the form also require confirmation if the reporting company is the parent company. The form has two parts namely
  • Part A: Allocation of income, taxes and business activities by tax jurisdiction
  • Part B: List of all CEs of the IG included in each aggregation per tax jurisdiction
  • Tax jurisdiction wise details of
Tax Jurisdiction
Tax Jurisdiction 1
  • Part B requires information regarding the main business activities classified in a particular format for each CE. The business activity classification is as under
Business Activity

Mutual Agreement Procedure

Mutual Agreement Procedure Mutual Agreement Procedure (‘MAP’) is a procedure set out in most treaties which permit designated Government representatives to work together to resolve international tax disputes including issues involving double taxation, questions regarding residential status, tax recovery etc. MAP is used to eliminate double taxation that can arise from transfer …
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Anti-Avoidance measures in certain jurisdictions – Transfer pricing

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Penalties for non-compliance – Transfer Pricing

Penalties for non-compliance – Transfer Pricing The Act has prescribed strict penalties for non-compliance in terms of non-disclosure or incorrect disclosure Question International group shall maintain information and documents in Master file when Consolidated group revenue of the International group is (as reflected in Consolidated Financial Statements of the International Group) is More than …
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Introduction to Transfer Pricing

Introduction to Transfer Pricing Transfer Price “Transfer Price” is the price at which an enterprise charges for its transaction within its group entitiesInternational transaction involves more than one tax jurisdiction, and due to disparity in tax rates and method of computing income, the parties may try to adjust the transfer pricesSince the …
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Limitation of interest deductions – transfer pricing

Limitation of interest deductions – transfer pricing Introduction Popularly known as ‘Thin Capitalization Rules’, this provision intends to cap the interest that can be paid to the AEs in case of borrowings.Generally, debt is a preferred instrument to provide funds to the subsidiary or group company rather than equity due to the …
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