Indian flavors in transfer pricing master file, country-by-country rules

by Jitendra Jain, PricewaterhouseCoopers Private Limited, India

Chinese cuisine is the most popular foreign cuisine in India, surpassing other popular cuisines such as Italian, Thai, and Mexican. Most Indian restaurants have adapted the Chinese cuisine to tickle the Indian taste buds by adding spices and Indian flavors to it. It’s known as Indian Chinese.

McDonald’s customized the traditional burger by adding Indian street food touch to it and introduced the Mc Aloo Tikki Burger. We in India love to add Indian flavors to popular dishes from other countries. The recently released draft rules on master file are also a case in point.

The much-awaited rules on implementation of master file and country-by-country report were released yesterday for comments. The master file requirement is applicable to every entity of a group that satisfies the following two conditions:

  • The consolidated revenue of the group exceeds INR 5 billion (~$76M); and
  • The aggregate value of international transactions exceeds INR 500 million (~$7.6M) or aggregate value of international transactions in respect of intangible property exceeds INR 100 million (~$1.5M).

Customization of the master file

While India’s country-by-country rules are in line with the OECD prescribed format and requirement, there are certain tweaks or Indian flavors to the master file requirements. These tweaks will require multinationals to customize their master file for India. The tweaks are highlighted below:

Master File Requirement Summary of OECD Requirement Indian Tweaks
Organization structure Chart illustrating MNE’s legal and ownership structure and geographical location of operating entities


Requires addresses of all the operating entities of the group
Description of MNE’s business Important drivers of business profit, supply chain of top five products/services, main geographic markets, principal contributions to value creation, important business restructuring transactions


Requires functions, assets and risks analysis of entities contributing at least ten percent of the group’s revenue, assets, and profits
MNE’s Intangibles Overall strategy for ownership, development and exploitation of intangibles, list of important intangibles with ownership, important agreements and corresponding transfer pricing policies


Requires list of ‘all’ the entities of the group engaged in development and management of intangibles with their addresses. Also, requires addresses of entities legally owning important intangibles and entities that bought and sold important intangibles.
MNE’s intercompany financial activities Description of how the group is financed, identification of entities performing central financing function and corresponding TP policies


Requires names and addresses of the top ten unrelated lenders
MNE’s financial and tax positions MNE’s consolidated financial statements, brief description of unilateral advance pricing agreements and tax rulings



As evident from the above, while certain tweaks will increase administrative work (e.g., collating addresses of all the operating entities), certain other tweaks (e.g., functional analysis of the entities contributing at least ten percent of the group’s revenues, profits and assets) will involve conducting a thorough functional and value chain analysis of the predominant entities.

In addition to the above, the proposed rules require the master file to be filed in a prescribed form. Due to the tweaks highlighted above and the prescribed form, the master file must be customized to comply with the Indian rules.

Is India alone in tweaking the contents?

When it comes to tweaking the contents of the master file, India is not alone. China has prescribed certain additional information in the master file as well.

For example, it requires list and description of bilateral advance pricing agreements (OECD prescribes description of unilateral advance pricing agreements only) and functional analysis and employees of principal R&D facilities. Indonesia requires information on business restructuring transaction for past five years as opposed to one year prescribed by the OECD.

First year timeline

The master file needs to be signed and submitted by the due date of filing the tax return, i.e., November 30. However, to provide sufficient time to Taxpayers to comply with the requirement for the first year, the Master File for financial year 2016-17 can be submitted by March 31.

Low threshold

The group turnover threshold for preparing the master file of INR 5 billion (~USD 76M) and the international transactions threshold of INR 500 million (~USD 7.6M) is low as compared to threshold prescribed by certain countries such as Japan (group turnover threshold of JPY 100 billion or ~USD 888M) and China (related party transaction threshold of RMB 1 billion or ~ USD 150M). The low threshold and the tweaks highlighted above will increase the compliance burden for MNCs.


The draft rules are open for comments till October 16. The consultation window provided by the Central Board of Direct Taxes is in continuation of its inclusive approach of issuing critical rules for consultation before finalization.

One hopes that the final rules move one more step closer to the OECD prescribed contents, if not exactly akin to the OECD contents. Another positive is that the rules talk about implementing appropriate security and archival policies. This is a big positive and will ensure confidentiality of the information provided in the Master File.

Time to act is now

So, what do the Taxpayers need to do now?

For taxpayers who have already prepared the master file to comply with the requirements of other countries, they need to now start the process of customizing the master file to meet the Indian requirements.

The Indian subsidiaries of foreign multinationals should obtain the global master file, if not done already. They also need to identify the gaps between the existing master file and the Indian requirements and need to start the process of gathering additional information (e.g., functional analysis of the predominant entities, addresses of all the operating entities, list of top-ten lenders, etc.) right away.

For taxpayers who haven’t prepared the master file in view of the high threshold in other countries, well, the time to act is now.

Some of the key challenges in preparing the master file are identification of the value drivers of the group, analyzing the entities’ contribution to the value chain, mapping the supply chain, and identification of ‘important’ intangibles from transfer pricing perspectives.

This will require a comprehensive value chain analysis of the group. Therefore, it’s highly recommended that the master file preparation process is commenced immediately.

In addition to being a compliance document, the master file is also an opportunity for taxpayers to explain the transfer pricing policies, structure, and value chain at the group level to the tax authorities. Therefore, taxpayers should devote sufficient time and attention to this important requirement.

And yes… don’t forget to add Indian flavors to it!!

Views and opinions expressed in this article are those of the author and do not reflect the views of the organization.

Jitendra Jain

Jitendra Jain is Executive Director, Transfer Pricing, at PricewaterhouseCoopers Private Limited, India

Jitendra Jain

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