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About Master File and Country by Country Reporting

Prior to the implementation of Master File and CbCR, the absence of qualitative data, particularly with regard to corporate taxation, was a significant obstacle to quantifying the fiscal and economic effects of tax avoidance. Authorities found it extremely challenging to analyse transfer pricing analyses of transactions between linked organisations because of these gaps. In fact, in such a circumstance, the authorities found it even more hard to conduct audits.

Action Plan 13 was developed as a first step to deal with this significant issue. Every multinational corporation is required to submit a comprehensive report, known as a “county by country report” (CbCr), to the relevant tax authorities in accordance with this Action Plan.

A master file should be filed by every constituent entity of an international group to tax authorities of a country in which such an entity is a resident. The MF should include a general overview of the MNE firm, including the nature of its international operations, general TP policies, revenue distribution, and economic activity. MF is not meant to offer comprehensive explanations. It will primarily include information about the group’s organisational structure, the business’s description, intangibles, intercompany financial transactions between group members, and MNEs’ financial and tax positions.

  • Rule 10DA
    Specifies the threshold for applicability for MF, the information and records that the Constituent Entity (CE) is required to keep, as well as the timelines and information-furnishing requirements. The suggested threshold for maintaining MF has not been set by the OECD, hence the threshold and the calculating technique vary among jurisdictions.

The Indian requirements of MF shall be applicable to every CE of an IG, subject to the following two conditions:

  1. Consolidated group revenue for the IG of which the CE is a part of, as reflected in its consolidated financial statements for the previous accounting year, should exceed INR 500 Cr. (and)
  2. The aggregate value of international transactions of the CE:
    1. During the reporting accounting year, as per books exceeds INR 50 Cr. (or)
    2. Aggregate value of international transactions of the CE in respect of purchase, sale, transfer, lease or use of intangible property, during the reporting accounting year, as per books, exceeds INR 10 Cr.
  • Form 3CEAA
    Form 3CEAA has two parts (Part A & Part B) and has to be electronically furnished to Director General of Income Tax [DGIT] (Risk Assessment), on or before the due date for filing the return of Income as specified in Section 139 of the Act.
  • Part-A is to be furnished by every CE of an IG. It only contains a few details about the taxpayer, the IG to which it belongs, how many group entities there are in India, their permanent account numbers, locations, etc. Regardless of whether there is an international transaction taking place or the threshold has been met or not, every member of the IG is required to file this information.
  • Part-B requires more exhaustive information on more than twenty items listed as part of MF. However, Part-B needs to be furnished only by those CEs that qualify the threshold for maintaining of MF. In Part B includes Ownership Structure, Business Description of the Group, Details of Intangible Properties and Finance Arrangements.
  • Form 3CEAC
    When Parent Entity/Alternate Reporting Entity is not a resident in India and files a CbCR in its respective jurisdiction while an automatic exchange of CbCR is activated between that jurisdiction and that of the Constituent entity,i.e India, Form No. 3CEAC must be submitted.

A penalty of Rs. 500000 is attracted on failure to file the Master File.

  • Rule 10DB
    The information that must be provided as part of CbCR, the threshold, and the method of providing the information are all outlined in Rule 10DB.

The parent entity or alternate reporting entity which is resident in India to submit the following information in CbCr:

  • Aggregate information in respect of amount of revenue, profit before tax, amount of income tax paid, stated capital, accumulated earnings, number of employees and tangible assets with regard to each jurisdiction in which group operates.
  • Details of each constituent entity of the group and country in which such entity is incorporated including country of residence of such entity.
  • Nature and details of business description of each constituent entity.
  • Form 3CEAD
    This form has been prescribed for reporting CbC information. Constituent entity being a parent of the group, if such parent company is resident in India, shall submit CbCr in Form 3CEAD if the consolidated group revenue as per the consolidated financial statement for the accounting year preceding to reporting accounting year exceeds Rs.6,400 Crores. The Form is divided into three Parts and is a complete replication of the OECD tables. This form should be filed within a period of 12 months from the end of relevant reporting accounting year.

The ultimate parent organisation of the group must submit the CbCr, and the tax jurisdiction where it is lodged must share it with other jurisdictions.

Any constituent entity may be designated by the ultimate parent to submit the CbCr to the tax authorities where the alternate reporting entity resides. In this scenario, the alternative reporting entity fills the parent company’s place and submits the CbCr. This substitute reporting entity has been designated as surrogate parent entity by the OECD.

  • Form 3CEAC
    Every Indian constituent entity of a group headquartered outside India is required to file the CbC report notification in this form. This must be submitted at least two months before the deadline for submitting the CbC report.
  • Form 3CEAE
    In case the IG has presence through more than one CEs resident in India, the group may designate one of the CE to furnish CbC report in India and notify DGIT (Risk Assessment) in Form 3CEAE.

Penalties:

  • INR 5,00,000 -Furnishing of inaccurate information in CbCR
  • INR5,000/15,000/50,000 per day – Non furnishing of CbCR – Depending on the days of delay of violation

Our expertise in this role provides you with end-to-end administration and data aggregation in accordance with the most recent CbCR rules, allowing you to avoid penalties caused by faulty data submission and failure to meet deadlines.

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