Transfer Pricing

Amendments to Income-Tax rules and CbCR requirements in India

Corresponding to OECD’s BEPS Action plan 13, India has previously adopted Country by Country Reporting (‘CbCR’) and Master File compliances in its Tax Legislation, through amendment in Section 92D and Introduction of new Section 286 in Indian Income-Tax Act, 1961.
 

Further, the framework to comply with these requirements is provided through Rules 10DA and 10DB of the Income-Tax Rules, 1962.
 

In this connection, the Central Board of Direct taxes (‘CBDT’) vide its Notification No. 31/2021 / F.No.370142/19/2019-TPL dated 5 April 2021, has notified certain amendments to these Rules i.e. 10DA and 10DB, which comes to effect from 1 April 2021.
 

Master File related amendment

As per amendment to Rule 10DA(4), where there are more than one constituent entities of an international group required to file the information and document in Master File (i.e. Form No. 3CEAA) in India, now any one entity of the Group can be designated to comply with these requirement, irrespective of their residential status in India.
 

Pre amendment, only resident entities in India were allowed an option to designate an entity among themselves, to comply with Master File related compliances for other resident constituent entities in India.

This effectively meant that foreign resident entities who were liable to comply with Master File related compliances in India, earlier could not designate their Indian resident associated entities to comply with these requirements in India on their behalf.
 

Therefore, these amendment would now rule out compliance requirement in India for foreign entities and avoid duplicative compliance efforts for the MNE group in India.
 

Alternatively, it would now also be possible to designate foreign entity to carry out Master File compliance for all constituent entities of the MNE group in India.
 

CbCR related amendment

As per amendment to Rule 10DA(6), the threshold for applicability of CbCR related compliance requirement is now amended to INR 6,600 crores from INR 5,500 crores provided earlier.
 

These corresponds to currency fluctuation in INR vis-a-vis EURO, and now realigns with the threshold of OECD’s BEPS Action Plan 13 of EUR 750 million.
 

This would further reduce the chances of applicability of CbCR to Indian entities having a foreign parent, wherein, the CbCR compliances are not applicable to such parent entities due to threshold of 750 Million (or such equivalent currency limit) in their respective jurisdiction.
 

Thus overall, both the amendments brought in by the CBDT are very welcome step and would certainly ease the compliance of Indian taxpayers.