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India being a member of OECD and BEPS, introduced section 286 in Income tax Act, 1961 to make mandatory for the companies to submit Country by Country Report and another section 92D for the companies to make filing of Master File to the tax authorities. Both these documents form part of Transfer Pricing Documentation. Recently an amendment was introduced in Rule 10DA and 10DB to introduce changes in the filing of the documentation and with respect to the prescribed authority.
Tax authorities around the world have been concerned with the tax evasion strategies adopted by business entities running their operations in multiple jurisdictions. This mostly happens in the transfer pricing mechanisms adopted by these business entities. One of the reasons why tax authorities have not been able to curb this malpractice by these business entities is lack of availability of data on corporate taxation.
In order to counter the menace of tax avoidance by the multinational business groups running their operations in multiple jurisdictions, OECD came out with an Action Plan 13 under Base Erosion and Profit Shifting (BEPS) which mandated submission of documents like Master File (MF) and Country by Country Report (CbCR) to the tax authorities in their respective jurisdictions giving details of their economic activities.
An international Group comprises of a group having-
A parent entity is one that holds controlling interest in other business entity (usually called a subsidiary of the parent company) with respect to the amount of managerial decision making power and affecting the running of operations of the subsidiary company.
A constituent entity comprises of the following entities:
A Transfer pricing documentation includes the following documents:
A Country by Country report (CbCR) finds mention in section 286 of the Income Tax Act, 1961[1] mandating the parent entity and the constituent entity having residency in India to share details of their business activities in each jurisdiction where that business conducts its operations. These details include information about their employees, assets with the company, sources of earnings, tax paid, amount of revenue etc.
A Master File is a document which finds existence in section 92D of the Income Tax Act, 1961 which mandates the constituent entity of an international business group to keep and maintain such details and information about their business operations as have been mentioned in Rule 10DA of Income tax Rules, 1962. This document is then bound to be submitted to the income tax authorities for their scrutiny.
Some amendments have been made by the Central Board of Indirect Taxes (CBDT) with respect to the Rule 10DA and Rule 10DB of Income tax Rules, 1962. The amendments are in regard to the changes introduced in the Transfer Pricing documentation. The changes are brought in the submission of the Master File (MF) and Country by Country report (CBCR).
Rule 10DA
As per sec 92D of the Income Tax Act, 1961 a constituent entity of an international group is required to keep and maintain such documents and information that have been prescribed by the Rule 10DA of Income Tax Rules, 1962.
Rule 10DB
Section 286 of the Income Tax Act, 1961 mandates every constituent entity of every international group to furnish a report.
The amendment has changed the designation of the Income tax authority for the purpose of Section 286 from “Joint Commissioner as may be designated by the Director General of Income-tax (Risk Assessment)”to “Joint Director as may be designated by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be”.
With the business entities coming out with innovative methods to avoid tax, the tax authorities too are making their joint efforts to curb the menace of tax avoidance under the garb of transfer pricing by the business entities conducting their operations in multiple jurisdictions. As a result of it, a list of transfer pricing documentation has been devised by the OECD under their BEPS initiative wherein business entities have been mandated to share details of their economic activities in the documentations like Master File and Country by Country Report.
Read our article:CBDT claims India will gain from OCED global tax deal
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