The tax department today notified the final framework for transfer pricing documentation that multi-national entities, with operations in India, will have to maintain. Known as Country-by-Country Report and Master File, the information will help the tax department determine whether a multinational company is paying taxes commensurate to the profit it generates in India.

The framework is in keeping with the OECD’s Base Erosion and Profit Shifting Project. Ihe Organisation for Economic Co-operation and Development had announced an action plan in 2015 to document global transfer pricing information, that is, the price at which entities within a group transact with each other.

India had adopted this action plan in the Finance Act last year and now the tax department has notified the final framework for it. The final rules mirror the draft that the Central Board of Direct Taxes (CBDT) had floated last month.

Master File Requirements

All multinational groups, with operations in India, will need to maintain a Master File that includes information on its operating entities in the country, their addresses etc. But exhaustive information has to be documented by those where -

• Consolidated revenue for the previous accounting year exceeds Rs 500 crore; and
• Value of international transactions of the Indian entity exceeds Rs 50 crore or those relating to intangible assets exceed Rs 10 crore.

A Master File will need to capture information regarding:

• List of all entities of the international group along with their addresses.
• Chart depicting the legal status of the constituent entity and ownership structure of the entire international group.
• Description of the business of international group: nature of the business, important drivers of profits, a description of the supply chain for the five largest products or services of the international group in terms of revenue.
• Functions performed, assets employed and risks assumed by those entities worldwide that contribute at least 10 percent to the group’s revenues, assets and profits.
• Details of entities of the group engaged in development and management of intangibles.
• Transfer pricing policies for inter-company financial activities.
• Details about cost allocation arrangements.
• Description of the important business restructuring transactions, acquisitions and divestments
• Overall strategy of the international group for the development, ownership and exploitation of intangible property…etc

The multinational group can either submit this information to the tax department itself or appoint its Indian entity to do so.

Country-By-Country Report Requirements

Multinational companies with consolidated group revenue of Rs 5,500 crore will be required to submit a country-by-country report. This could either be filed by the global parent or its Indian entity.

The report will require companies to provide the details of the main business activity of group entities and jurisdiction-wise information on:

• profit and loss before tax
• revenue
• income tax paid and accrued
• stated capital and accumulated earnings
• number of employees
• tangible assets other than cash and cash equivalents