Budget 2016 :Three tier transfer pricing documentation approach under BEPS project adopted by India

Under Action 13 of BEPS Action Plans, the OECD adopted a three-tiered approach to Transfer Pricing (“TP”) documentation which inter-alia, includes a local file, a master file and a country-by-country (“CbC”) report.

Adopting the above approach, the Finance Bill 2016 has introduced the CbC reporting and master file requirement. The CbC reporting requirement is introduced with effect from Assessment Year 2017-18 (financial year 2016-17), requiring Indian headquartered Multi-national Enterprises (“MNEs”) and certain other Indian entities of global MNEs to file the CbC report with the Indian Authority (to be prescribed). As per the Memorandum to the Finance Bill, India will adhere to the OECD prescribed group revenue threshold of Euro 750 million (`5395 crores at current exchange rates) for the applicability of the CbC requirement, though the specific threshold in Indian currency would be prescribed later (based on exchange rate as on 31 March 2016).

The CbC report is required to filed on or before the due date for filing the return of income in India (typically on 30 November following the end of the Indian financial year in March). The Memorandum to the Finance Bill has also introduced the requirement to maintain master file data, though the detailed provisions are to be prescribed later. Stringent penalty provisions have also been prescribed for non-furnishing and/or furnishing inaccurate particulars.

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