In October 2015, the Organisation for Economic Co-operation and Development (OECD) released its final report on Action 13 regarding Transfer Pricing (TP) Documentation and Country-by-Country (CbC) reporting. The report was issued under its Base Erosion and Profit Shifting (BEPS) Action Plan. The Indian government had introduced transfer pricing documentation and reporting requirements to the Indian Income Tax Act through the Finance Act, 2001.
Action 13 recommended a three-tiered approach to TP documentation consisting of:
- A master file which provides tax administrations with high-level information regarding the global business operations and TP policies of a multinational group
- A specific local file which provides the local tax administration with information regarding material related-party transactions, the amounts involved, and the company’s analysis of the TP determinations they have made regarding those transactions
- A CbC reporting template which provides information on the economic activity of the multinational group
The Indian government through the Finance Act, 2016 had brought in the legislation in the Indian Income Tax Act to implement the recommendations of the OECD. This covered provisions for additional TP documentation and CbC reporting. The Central Board of Direct Taxes (CBDT), the tax administration in India, has released the final rules regarding the same on 31st October 2017, which are largely in line with the OECD guidelines.
The CBDT has fixed the threshold for the master file requirements at INR 5 billion consolidated group revenues and INR 500 million international transactions or INR 100 million in respect of purchase, sale, transfer, lease or use of intangible property. However, certain basic information regarding the master file reporting has to be filed by all entities irrespective of whether they have any international transaction.
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