India’s final transfer pricing master file rules retain unique flavor

by Jitendra Jain, PWC

India’s Central Board of Direct Taxes (CBDT), on October 31, issued final rules for multinational taxpayers on the implementation of the transfer pricing master file and country-by-country report.

Following the October 6 draft version of the rules, the final rules differ somewhat from the OECD prescribed format, providing its own unique Indian ‘flavor.’ (These differences are discussed in detail in my October 7 article.)

Among others, the final rules make one important change to the draft, which will result in details of more entities of the group to be included in the master file.

A significant Indian tweak to the OECD’s master file rules in the draft was the requirement to include functional analysis of entities contributing at least ten percent of the group’s revenue, assets, and profits. Now the final rules have been modified to require functional analysis of entities contributing at least ten percent of the group’s revenue or assets or profits.

The ten percent criteria must be tested individually based on revenue, assets, and profits and not cumulatively. This requirement will bring far more entities of the group into the ambit of the master file.

For example, the master file rule will require functional analysis of an entity that contributes more than ten percent of the profits of the group even if it contributes less than ten percent of the group’s revenue or assets.

Also, now the rules require addresses of all the entities of the group, not just the ‘operating entities,’ as proposed in the draft rules.

The CBDT has also aligned the due date of filing the country-by-country report for financial year 2016-17 with the due date of filing the master file, i.e., March 31, 2018.

Immediate next steps for taxpayers

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

To the extent the existing master file doesn’t include functional analysis of entities crossing the ten percent threshold, taxpayers should start the process of gathering and assembling the information right away.

For taxpayers who haven’t yet prepared the master file in view of the high threshold in other countries, the preparation process should be kicked off immediately because mapping the supply chain and identifying the value drivers and ‘important’ intangibles from a transfer pricing perspective is a time consuming and facts intensive process.

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

-Jitendra Jain is Executive Director, PricewaterhouseCoopers Private Limited.


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