India proposes draft master file and CbC reporting rules
India’s Central Board of Direct Taxes has recently introduced draft rules for public comment that implement master file and country-by-country (CbC) fling requirements. These new proposed documentation rules generally align with those set forth by the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan 13, but do call for a greater level of detail in certain areas than those of the OECD.
These proposed rules would require the Master File—a standardized file containing certain transfer pricing information relevant to all members of a multinational group—to be signed and submitted no later than the due date of the Indian tax return (November 30). As part of the transition rules, however, Master Files for the financial year 2016-2017 are allowed to be submitted by March 31, 2018.
In general, India’s proposed Master File rules incorporate several of the reporting requirements set forth in the OECD’s Action Plan 13, such as requiring the reporting of external and related party revenue, profit before loss, income tax paid and income tax accrued, accumulated earnings, stated capital, number of employees, and tangible assets by jurisdiction, as well as a breakdown of main business activity and tax residence by entity.
However, these proposed Master File rules go on to require a much greater level of detail regarding these areas than those of the OECD. Most notably, India’s proposed Master File rules would require the inclusion of the addresses of all operating entities in the standard ownership structure and geographic location chart, as well as the inclusion of a functional analysis of entities that contribute 10 percent or more of the group’s revenue, assets or profits. In addition, the rules would require a listing (including address) of all entities of the group engaged in the development and management of intangibles, and a listing of the names and address of the group’s top 10 lenders.
Given the scope of these additional reporting requirements, multinational entities subject to these proposed rules will need to monitor their compliance carefully, and will likely need to prepare to rapidly customize their current Master File templates in order to properly align with these additional requirements.