Transfer Pricing
Documentation – Country by Country Report- India landscape
1. BEPS
Action Plan 13 advocates Three-tiered approach to transfer pricing
documentation as under:-
a) Master
file – Overview Information about MNE group categorized in 5 categories
i)
MNE group organization Structure
ii)
Description of MNE’ businesses
iii)
MNE’s intangibles
iv)
MNE’s inter-company financial Activities
v)
MNE’ financial and tax position
b) Local
File – Containing detailed information relating to transaction between
local country affiliate and associated enterprise, relevant financial
information regarding said transaction, comparability analysis and selection
and application of most appropriate transfer pricing method
c) Country
by country Report – Containing the following information
i)
the aggregate information in respect of the
amount of revenue, profit or loss before income-tax, amount of income-tax paid,
amount of income-tax accrued, stated capital, accumulated earnings, number of
employees and tangible assets not being cash or cash equivalents, with regard
to each country or territory in which the group operates
ii)
the details of each constituent entity of the
group including the country or territory in which such constituent entity is
incorporated or organised or established and the country or territory where it
is resident
iii)
he nature and details of the main business
activity or activities of each constituent entity
2.
BEPS – Annual Submission of Transfer
Pricing Documents to relevant Tax Authority
a) Master
and local File – Every constituent entity is required to submit Master and local
file with tax authority of the country in which entity is operating,
irrespective of Revenue of such entity.
b) Country
by Country Report – Parent entity of the group is required to file country by country
report in tax jurisdiction in which such parent entity is resident, provided
that annual consolidated group revenue of international group, as reflected in
Consolidated Financial statement, in preceding fiscal year is not less than EUR
750 Mn.
3.
India Position
a) India is signatory Country to the Multilateral
Competent Authority agreement on exchange of country by country report.
b) Accordingly,
India is required to share the Country by Country report, furnish by parent
entity in India, with other signatory Countries
c) Accordingly
Finance Act, 2016 has institutionalized the legal framework requiring the
submission of country by country report by parent entity of MNE group, resident
in India, to India’s Tax Authority.
d) The
content of reports and other incidental details are yet to notified through
appropriate rules and guidelines
4. India
Legal Frame work
a) Relevant
Definitions – Under Section 286
i)
Constituent Entity
·
Any separate entity of an international group
that is included in the consolidated financial statement of the said group for
financial reporting purposes;
·
Any Permanent establishment of separate business
entity of International group
ii)
Parent Entity - Constituent entity, of an
international group holding, directly or indirectly, an interest in one or more
of the other constituent entities of the international group, such that it is
required to prepare Consolidated financial statement under any law for time
being in force and no other constituent entity is required to prepare
consolidated financial statement
iii)
Group - includes a parent entity and all
the entities in respect of which, for the reason of ownership or control, a
consolidated financial statement for financial reporting purposes is required
to be prepared
iv)
International Group means any group that includes:-
·
Two or more enterprises which are resident of
different countries or territories
·
An enterprise, being a resident of one country
or territory, which carries on any business through a permanent establishment
in other countries or territories
b) Amendment
in Section 92D
i)
Every Constituent entity, as defined u/s 286, is
required to keep and maintain prescribed information & documents in respect
of international group, as defined u/s 286. The prescribed information, to be
notified through rules, must be relating to Master File and local file.
ii)
Every person who has entered into International
transaction is required to furnish above-said prescribed information and
documents to prescribed Authority. Submission of prescribed information is made
mandatory irrespective of any amount of revenue
iii)
As per literal interpretation, it seems
that constituent entity, which has not entered into international transaction,
is only required to keep and maintain the prescribed information and documents
and same is NOT required to be submitted to prescribed authority.
c)
Introduction of section 286 – Furnishing of
Report in respect of International Group
Ø The
reporting requirement under this section is applicable only when consolidated
group revenue as reflected in consolidated financial statement of International
group for the accounting year preceding the reporting accounting year exceeds prescribed
amount. This amount, to be specified in rules, must be in the range as
specified is BEPS Action Plan-13
Ø Reporting
Requirement
·
When Constituent entity, resident in India, is not a parent entity
·
When constituent entity, resident in India, is
Parent entity
Reporting
requirement - When Constituent entity, resident in India, is not a parent entity
i)
It is require to notify to prescribe Income tax
Authority on or before prescribe date, details of parent entity of
International group and country or territory of which said parent entity is
resident
ii)
It is required to file country by country report
of International group for a reporting accounting year to prescribed tax
authority in India, if parent entity is resident of country-
·
With which India does not have an agreement for exchange
of Country by Country report
·
There has been systemic failure of the country
and said failure has been intimated by prescribed authority to such constituent
entity
Systemic
failure" with respect to a country or territory means that the country or
territory has an agreement with India providing for exchange of report of the
nature referred to in sub-section (2), but—
(i) in violation of the said agreement, it
has suspended automatic exchange; or
(ii) has persistently failed to automatically
provide to India the report in its possession in respect of any international
group having a constituent entity resident in India.
Reporting
requirement - When Constituent entity, resident in India, is not a parent entity.
i)
Every parent entity , resident in India, shall
for every reporting accounting year furnish country by country report in
respect of International group to
prescribed Income tax Authority on or before the due date u/s 139(1)
ii)
Reporting requirement exemplified
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S.No.
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Parent Entity
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Other Constituent Entity
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Remarks
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1.
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Resident In India
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Subsidiary resident of
foreign Country
|
Parent entity is required to
file country by country report to prescribed tax authority in India
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2.
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Resident in India
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PE in foreign Country
|
The group is international
group, as defined above. So, Parent entity is required to file country by
country report to prescribed tax authority in India.
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3.
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Resident in India
|
Subsidiary in foreign
Country, but treated as resident of India under POEM
|
Parent entity is NOT required
to file country by country report to prescribed tax authority in India, as
the requirement of International group is not satisfied.
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