Beps Action Plan 13

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JGarg Economic Advisors Private Limited
707, Pearl Best Heights II, C-9 Netaji Subhash Place, PitamPura, New Delhi – 110034
E-mail Id : gaurav@jgarg.com
Website : www.jgarg.com
Three Tier Documentation Framework as per BEPS Action Plan 13 and
its Impact on India
In order to address the issues of Base Erosion Profit Shifting (‘BEPS’) pertaining to transfer pricing,
Organization for Economic and Cooperation Development (‘OECD’) with assistance from G20 countries
has recommended 15 action plans. In order to ensure transparency and consistency in transfer pricing
documentation, Action Plan 13 recommends three tier documentation frameworks which is one of
the 15 Action plans towards combating the BEPS related concerns. India being a member of the G20
countries in order to abide by the minimum standards to be followed by the signatory countries has
expressly brought a requirement in its tax framework for maintenance of the three tier documentation
which is almost in line with the BEPS Action plan 13.
Further, OECD has released revised guidelines for Transfer Pricing for Multinational Enterprises and
Tax Administrations by OECD on 10th
July 2017. One of the major highlight of the revised guidelines is
revision in the chapter V of OECD Guidelines related to Transfer Pricing documentation that is in line
with BEPS Action Plan 13. Earlier chapter V of the OECD Guidelines did not provide requirement for any
specific documentation rather, nor did it provide clear guidance with respect to the link between the
process for documenting transfer pricing, the administration of penalties and the burden of proof. With
Action plan 13, these issues have also been care of by OECD.
Before the introduction of the above documentation requirement, in India transfer pricing
documentation requirement was limited to providing information to the tax administration from the
perspective of the entity located in India only. With the introduction of the three tier documentation
framework MNE group1
will have to compile and provide the documentation from a more holistic view
of the group and will have to come out of the currently followed isolated framework of filing local
documentation in respective jurisdictions.
The idea behind the introduction of this action plan is to enhance transparency for tax administrations
and move towards risk based assessment from value based assessment. Also, the information that was
1
The term “MNE Group” means any Group that (i) includes two or more enterprises the tax residence for which is in
different jurisdictions, or includes an enterprise that is resident for tax purposes in one jurisdiction and is subject to
tax with respect to the business carried out through a permanent establishment in another jurisdiction, and (ii) is
not an Excluded MNE Group.

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earlier not feasible to be provided to the tax authorities for the reason of the associated enterprise
(”AE”) functioning in the foreign jurisdiction, will now be easier for the tax authorities to fetch due to
the introduction of the government to government exchange of information arrangements discussed in
later part of this document.
India being the member of G20 nations and observer to OECD has introduced CBC REPORT in its
domestic legislation via Finance Act 2016 which is in line with BEPS Action Plan 13 .The following section
discusses the relevance and impact of BEPS Action Plan 13 and respective adoption of it in domestic
legislation of India (as on date):
A. India’s perspective of the Three Tier Documentation
S.
No.
Questions with respect
documentation
India’s perspective
Master File
1. Whether requirement for
master file has been provided
as per the Indian Income Tax
Act?
Yes, via Finance Act 2016, as per Section 92D(1) read with 92D(4)
of the Income Tax Act, every constituent entity of the
international group has to keep and maintain master file and
furnish the master file to the tax authorities. However, the
information to be maintained in it is still not prescribed by CBDT.
But as India being a part of the G20 countries which has been
involved with OECD in the working of Action plan 13, it is
expected that the information required as per the master file
shall be in line with the Action plan 13.2
(Refer Section D of the
Article)
2. Penalty for non maintenance As per section 271AA, penalty of Rs. 500,000 has been
2
Mr. Akhilesh Ranjan (Principal CCIT - International tax & Transfer Pricing) assured the audience that
CBC Report rules have been finalized, but procedural formalities are under process and reiterating that
CbC Report data will be used for risk analysis purpose only and would not be arbitrarily made available
to field officers. Source : Taxsutra ALP Summit 2017(http://tp.taxsutra.com/news/14137/Taxsutra-ALP-
Summit-2017-TP-maestros-take-centre-stage)

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S.
No.
documentation
of master file prescribed for non furnishing of the Master file before the tax
authorities before the due date. The due date has not been
prescribed yet. However, it is expected to be the last date of
filing of return of income as recommended in Action plan 13
Local File
1 Whether the requirement for
local file is prescribed as per
the Income Tax Act?
In the Indian Income Tax Act, before the introduction of three
tier documentation, requirement for local transfer pricing
document was prevalent as per Section 92D of the Act read with
rule 10D. The particulars of the information as prescribed in rule
10D are in line with the requirement of local file as per Action
Plan 13 subject to certain more requirements. (Refer Section E of
Article for details on information prescribed for local file under
Action Plan 13)
2 What are the differences in
the information currently
required to be reported as
per the Income tax act and as
per the local file
On comparison of the information required to be kept and
maintained under 92D read with rule 10D and requirement for
local file as per Action Plan 13, the following information has not
been expressly provided in rule 10D.
 Description of management structure of the local entity,
further details about the organizational structure as
required in the Local file template.
 Whether the local entity has been involved in or
affected by business restructurings or intangibles
transfers in the present or immediately past year and an
explanation of those aspects of such transactions
affecting the local entity.
 Copies of all material intercompany agreements
 A copy of existing unilateral and bilateral/ multilateral

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S.
No.
documentation
APAs and other tax rulings to which the local tax
jurisdiction is not a party and which are related to
controlled transactions.
It is expected that in order to bring the local documentation
requirement totally in line with the Action Plan 13, necessary
amendment shall be made in rule 10D of the Income Tax rules in
India.
Country by Country reporting
1. Whether the requirement for
CbC Report is prescribed as
per the Income Tax Act ?
Via Finance Act 2016, Section 286 ‘Furnishing of report in
respect of international group’ has been introduced with respect
to the Country by country reporting. It is in line with Action plan
13. (Refer Section F of the Article for details )
2. Can the OECD guidance on
CbC Reporting be used to
interpret the Indian CbC
Reporting legislation?
In general, being India is signatory to BEPS implementation
package, OECD guidelines should be followed. However, where
there is a conflict, the Indian CbC Reporting legislation i.e. S.286
of the Act and related rules takes precedence.
3. Who is required to file a CbC
Report in India
The requirement is in line with BEPS Action Plan 13 as detailed in
Section F of the Article.
In brief, every parent entity or alternate reporting entity, tax
resident in India, shall be required to file CbC Report in India.
Also, a constituent entity not being a parent entity or alternate
reporting entity resident in India shall be required to file the CbC
Report if the parent entity/alternate reporting entity is a
resident of a country,
 with which India does not have agreement for exchange of
report, or
 there has been a systemic failure of the country or territory

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S.
No.
documentation
and the said failure has been intimated by the tax authorities
to such constituent entity.
The reporting entity is same as described in Action plan 13
(discussed in the section F of Article), only change is instead of
the term surrogate parent entity, alternate parent entity has
been used.
4. How will Indian Income Tax
Authorities receive the CbC
Report where the reporting
entity is not tax resident in
India
Where the reporting entity is not a tax resident in India, Income
tax authorities will receive the CbC Report from the competent
authority in the jurisdiction in which the reporting entity is tax
resident under automatic exchange of information provisions.
(For details on mechanism of exchange of information, Refer
Section G of the Article)
5. Information prescribed to be
submitted as per the Income
Tax Act
Information as given in section 286 is same as prescribed in
Action plan 13, however, till now no template has been
prescribed by Indian Tax authorities and it is expected to be
provided in the near future.
6. The threshold of Consolidated
turnover for the applicability
of CbC Report to international
group
Memorandum explaining finance bill has stated that based on
exchange rate as on the last day of the previous year 2015-16,
INR amount equivalent to Euro 750 million will be the threshold
limit for applicability.
7. Penalty for failure to furnish
CbC Report or further
information called
for in support of disclosures
made in CbC Report
As per Section 271GB of the Act,
 if default is not more than a month, penalty of Rs.
5000/- per day applies
 if default is beyond one month, penalty of Rs 15000/-
per day for the period exceeding one month applies;
 for any default that continues even after service of any
of the above penalty order @ Rs 50,000/- per day;

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S.
No.
documentation
8. Countries notified by India for
exchange of information
under CBC MCAA
India has signed CBC MCAA on 12.05.2016 alongwith 56 other
countries as on date, however has not notified any country as on
date to exchange the information.
CBC MCAA has been signed by India but has not yet made
necessary ratification required in the domestic law and has also
not list the countries with which MCAA will be active. Author
understands that it is under process and government may come
up with new section for this exchange of information in Budget
2018.
9. Compliance in India for MNE
groups having Indian CE
whose ultimate reporting
entity is based in USA
USA is not a signatory to MCAA and therefore MNE groups
having Indian CE whose ultimate reporting entity is based in
USA, may need to identify the alternate reporting entity or
submit CbC Report in India.
10. Points to consider while
preparing Master File and
Local file
MNE group need to ensure consistency between local file and
master file in terms of value chain analysis, methods and tested
party selected for international transactions. Few instances;
 Where one Constituent entity has selected itself as
tested party while its AE has selected AE as the tested
party in respect of same international transaction.
 One CE has applied TNMM as MAM while its AE has
selected PSM as MAM.
To avoid the discrepancies in FAR, method selected and tested
party, MNE group must coordinate to align the disclosure with
local file of its group entities while drafting the Master file.

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S.
No.
documentation
11 Where entity in India is the CE
of the MNE group to which
CBC Report is required to be
filed. What Indian entity is
required to comply with?
 Report the parent entity or alternate reporting entity
and their country and tax residency and whether CE is
the reporting entity, by the prescribed date that is not
yet prescribed. But in a meanwhile, CEs can assess the
reporting entity of their respective groups for captioned
reporting.
 File the Master file of the group , format and date of
which is not yet prescribed by the Indian Government
12 How Ind AS adoption will
affect the CBC reporting in
India
India has adopted Ind AS from FY 2016-17 for listed as well as
non listed Companies having net worth exceeding INR 500Cr.
Therefore applicable GAAP followed by the reporting entity will
affect the following:
 The revenue recognition principle varies in Ind As and
Accounting Standard. The threshold of INR 5394 Cr may
exceed in Ind As and not in Accounting standard or vice
versa.
 Consolidation principle also varies in Ind AS and
Accounting Standards that will decide the CEs that will
be reported. It will particularly raise the issues in
relation to reporting requirement in relation to Joint
Ventures.
 As clarified by OECD, JV will be consolidated based on
pro rata consolidation or full consolidation based on
GAAP applicable on reporting entity.

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B. Three tired approach to Transfer Pricing Documentation under BEPS
Action Plan 13
An overview of the documentation framework introduced to cater to the above objectives as per Action
plan 13 is as under:
There are three objectives of transfer pricing documentation as envisaged in the Action plan 13, the
same is given as under:
1. Self Assessment by taxpayer - To ensure that taxpayer assess its compliance with the arm’s
length principle and tax administration also get the assurance about the same based on pre
defined documentation framework maintained by the taxpayer
2. Transfer pricing risk assessment – Giving tax authorities extensive information via
documentation requirement at early stage to enable them to carry out high quality transfer
Three tier documentation
Master File
It provides an overview of the
MNE group business, including the
nature of its global business
operations, its overall transfer
pricing policies and its global
allocation of income and economic
activity in order to assist tax
administrations in evaluating the
presence of significant transfer
pricing risk.
Country by country reporting (CbC
Report)
This report requires aggregate tax
jurisdiction wide information
relating to global allocation of
Income, the taxes paid and certain
indicators of the location of
economic activity among tax
jurisdictions in which the MNE
group operates.
Local File
Local file provides more detailed
information relating to specific
intercompany transactions. It
focuses on transactions taking
place between the local country
affiliate and associated
enterprise in different countries.
This file supplements the master
file.

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pricing risk assessment. Based on the risk assessment only selected taxpayers having high risk
shall be selected for transfer pricing audit.
3. Transfer pricing audit – To provide tax administrations with detailed information during the
audit. In the current scenario as detailed information is not expressly required as per the
documentation requirement, tax administrations during the transfer pricing audit were not able
to fetch the detailed information. With the introduction of the new guidelines, the requirement
of documenting holistic information has been provided which will enable tax administrations to
conduct extensive audit of the transactions.
C. Master File
1. Information required to be reported in master file
The information required in the master file provides a “blueprint” of the MNE group and contains
relevant information categorized under the five heads. A summary of the information required as per
the template is provided by OECD as summarized hereunder:
1. Organization structure describing
a. ownership structure and
b. geographical location of constituent entities
1
2. General description of the MNE’s business including the following information
a. Important drivers of business profits
b. With regard to the group’s five largest products and/ or service offerings and products/ services amounting to 5% of the
group turnover
 Description of the supply chain of each such product/ service
 Turnover from the product/ service
c. For inter group services
 List of all important service arrangements between member of MNE group(constituent entities*), other than
R&D services
 Capabilities of service provider for important service arrangement
 Transfer pricing policies for allocating service cost/prices charged for inter group services.
d. Functional analysis, risk assumed and asset employed that depicts the value creation by constituent entities*.
e. Business restructuring/acquisition /diversification during the year
3. Information on group intangibles
f. General description of the MNE’s overall strategy for the development, ownership and exploitation of intangibles,
including location of principal R&D facilities and location of R&D management.
g. List of important intangibles of MNE group that are important for transfer pricing purpose.
h. Legal owner of said intangibles
i. List of agreements related to development of intangibles – cost contribution arrangement, research service
arrangement, and license agreement.
j. Transfer pricing policy related to intangibles/R&D
k. Details of transfer of intangibles, if any, during the year.

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2. Points to be considered for documenting information under master file
 It is not required to provide exhaustive details of information. Only important details should
form part of the master file. The information should meet the objective of master file of
providing tax administrations with high level information about the MNE group and not each
and every information which is unnecessary and make the it as a whole burdensome
 When the requirement of master file can be satisfied by specific cross references to existing
documents, such cross reference along with the copy of the documents shall be deemed to
satisfy the requirements.
 The information in the master file has to be presented for the MNE group as a whole and not
entity wise. However, business line wise presentation can be done.
 Even if master file is presented business line wise, information about all business lines should be
provided to each country where any of the constituent entity operates.
Information in Master file will provide the holistic view of the MNE group and assist in
understanding the value chain in relation to major activities of the group including intangibles. This
will facilitate the group allocation based on value creation as also in line with BEPS Action Plan 8-10
– Aligning Transfer pricing Outcomes with value Creation.
4. Intercompany Financial Activities
a. Financing arrangement of the constituent entities, specifying financing with unrelated lenders.
b. Identification of group member that provides centralized financing function – detailing the country where it is
legally organized and place of effective management of that entity.
c. MNE’s general transfer pricing policies related to financing arrangements between associated enterprises
(constituent entities).
5. MNE’s financial and tax position
c. The MNE’s annual consolidated financial statement for the fiscal year concerned
d. A list and brief description of the MNE group’s existing unilateral advance pricing agreements (APAs) and other
tax rulings relating to the allocation of income among countries.

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3. Who is required to maintain and where it is to be submitted?
OECD recommends that implementation of Master file and local file should be done through local
country legislations in each relevant jurisdiction where the constituent entity of the group is situated
and the information should be submitted with the tax administrations in respective tax jurisdictions.
Accordingly, appropriate amendment needs to be made in the local legislations making it binding to
submit local file and master file annually.
D. Local file
1. Information to be provided in the local file
OECD guidelines provide template which contains the list of information to be provided as a part of the
local file. List of the information forming part of the local file is given in Action Plan summarized
hereunder:
Information for the local entity
 A description of the management structure of the local entity, a local organization chart, and a description of the individuals to
whom local management reports and the country (ies) in which such individuals maintain their principal offices.
 A detailed description of the business and business strategy pursued by the local entity including an indication whether the
local entity has been involved in or affected by business restructurings or intangibles transfers in the present or immediately
past year and an explanation of those aspects of such transactions affecting the local entity.
 Key competitors.
Information with respect to the controlled transactions
 A description of the material controlled transaction and the context in which the transaction takes place.
 Amount of intra group payments and receipts for each category of controlled transactions involving the local entity broken
down by tax jurisdiction of the foreign payer or recipient.
 An identification of associated enterprises involved in each category of controlled transactions, and the relationship amongst
them.

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2. Who is required to maintain local file and when to file?
It is recommended by OECD that local file be filed by the local country affiliate of the MNE group with
the local country tax administration and accordingly appropriate provision should be made in domestic
legislation.
E. Country by Country reporting (‘CbC Report’)
1. Information required to be reported under CbC Report
OECD has provided the template for the information that is required to be reported as a part of the CbC
Report report in the form of two tables. The tables contain following information:
Table 1 – Giving Overview of allocation of income, taxes and business activities by Constituent Entities
 Copy of all material intercompany agreements concluded by the local entity
 A detailed comparability and functional analysis of the taxpayer and relevant associated enterprises with respect to each
documented category of controlled transactions, including any changes compared to prior years
 An indication of the most appropriate transfer pricing method with regard to the category of transaction and the reasons for
selecting that method.
 An indication of which associated enterprise is selected as the tested party, if applicable, and an explanation of the reasons for
this selection
 A summary of the important assumptions made in applying the transfer pricing methodology.
 If relevant, an explanation of the reasons for performing a multi-year analysis.
 A list and description of selected comparable uncontrolled transactions (internal or external), if any, and information on
relevant financial indicators for independent enterprises relied on in the transfer pricing analysis, including a description of
the comparable search methodology and the source of such information.
 A description of any comparability adjustments performed, and an indication of whether adjustments have been made to the
results of the tested party, the comparable uncontrolled transactions, or both.
 A description of the reasons for concluding that relevant transactions were priced on an arm’s length basis based on the
application of the selected transfer pricing method.
 A summary of financial information used in applying the transfer pricing methodology.
 A copy of existing unilateral and bilateral/multilateral APAs and other tax rulings to which the local tax jurisdiction is not a
party and which are related to controlled transactions described above.

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Table 2 – List of all the constituent entities of the MNE group included in each aggregation per tax
regulations.
Summary of the information to be contained as a part of the above template along with the
understanding of the information to be provided is given as under:
S.
No.
Information required Understanding of the information required
1. Name of all the
constituent entities3
along with tax
jurisdiction of each
constituent entity
Tax jurisdiction means the state and non state jurisdiction which has
financial autonomy in which the constituent entity is resident for tax
purposes. Following test should be conducted where constituent entity
is resident in more than one tax jurisdiction:
a) Tax treaty tie breaker should be applied
b) If no tax treaty exist, tax jurisdiction shall be determined in
accordance with place of effective management of the tax
treaty
In case of PE, tax jurisdiction is where it is situated. Resident tax
jurisdiction of which PE is a part should exclude financial data of PE
for CbC Report.
2. Amount of revenue
earned by constituent
entity from Non related
entities of the MNE
group
Revenue should include revenue from sale of inventory and
properties, services, royalty, interest, premiums and any other
amounts. Also extraordinary income and gains from investment
activities should also be included.
Revenue should exclude payments received from other constituent
entities that are treated as dividend in the payer’s tax jurisdiction
Aggregate of the information required in (2) and (3) should be equal to
the total revenue of each constituent entity.
Related entities are constituent entities as clarified by OECD.
Further, OECD vide guidelines in July 2017, has clarified that data in
3. Amount of revenue
earned by related
parties of the MNE
group
3
The term “Constituent Entity” means (i) any separate business unit of an MNE Group that is included in the
Consolidated Financial Statements of the MNE Group for financial reporting purposes, or would be so included if
equity interests in such business unit of an MNE Group were traded on a public securities exchange; (ii) any such
business unit that is excluded from the MNE Group’s Consolidated Financial Statements solely on size or materiality
grounds; and (iii) any permanent establishment of any separate business unit of the MNE Group included in (i) or (ii)
above provided the business unit prepares a separate financial statement for such permanent establishment for
financial reporting, regulatory, tax reporting, or internal management control purposes.

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S.
No.
the CbC Report has to be reported at aggregate level and not on
consolidated level for each tax jurisdiction (i.e. no netting off in case
of intercompany transactions). However, an exemption has been
given to ultimate parent companies in whose tax jurisdiction concept
of corporate tax groups is prevalent. They may report on a
consolidated level.
4. Profit/ (loss) before
income tax
Profit/ (loss) of each constituent entity should include all extraordinary
income and expense items
5. Income tax paid on
cash basis
This shall include total amount of income tax actually paid during the
relevant fiscal year by the constituent entity in its resident tax
jurisdiction and all other tax jurisdiction.
Taxes shall include withholding taxes paid by other entities (both
constituent entities and independent parties) with respect to
payments to the constituent entity. For Eg. company A resident in tax
jurisdiction A earns interest in tax jurisdiction B, the
tax withheld in tax jurisdiction B should be reported by company A.
6. Income tax accrued
(current year)
It should include the sum of accrued current tax expense recorded on
taxable profits or losses of the year of reporting of constituent entity in
the relevant tax jurisdiction
Current tax expense should reflect only operations in the current year
and should not include deferred taxes or provisions for uncertain tax
liabilities
Stated capital Stated capital of constituent entity in the relevant tax jurisdiction.
With regard to permanent establishments, the stated capital should be
reported by the legal entity of which it is a permanent establishment
unless there is a defined capital requirement in the permanent
establishment tax jurisdiction for regulatory purposes
Accumulated Earnings Total accumulated earnings of the each constituent entity for tax
purposes in the relevant tax jurisdiction
Number of employees Following points should be given importance for determining the
requisite information:
 Total number of employees on a full-time equivalent (“FTE”)
basis of constituent entity resident for tax purposes in the
relevant tax jurisdiction.
 The number of employees may be reported as of the year-end,
on the basis of average employment levels for the year or on

15
S.
No.
any other basis consistently applied across various tax
jurisdictions and from year to year.
 For this purpose, independent contractors participating in the
ordinary operating activities of the Constituent Entity may be
reported as employees.
Tangible assets other
than cash and cash
equivalent
Net book value of the tangible assets of the constituent entity for tax
purposes in the relevant tax jurisdiction
Tangible assets for this purpose do not include cash or cash
equivalents, intangibles, or financial assets.
Main business activities
of each constituent
entity
Define the role played by constituent entity in each in the group.
Categorize the main business activity under one or more of the
following heads:
 Research and development
 Holding or managing Intellectual property
 Purchasing procurement
 Manufacturing or production
 Sales, marketing or distribution
 Administrative management or support services
 Provision of services to unrelated parties
 Internal group finance
 Regulated financial services
 Insurance
 Holding shares or other equity instruments
 Dormant
 Other – specify the nature of the activity
2. Time and currency prescribed for filing CbC Report
 OECD has recommended that the CbC Report should be prepared and filed for MNE fiscal years
beginning on or after 1st
Jan 2016 and recommended that MNE’s should be allowed 1 year from
the end of the fiscal year for submission of the information with the tax authorities. Fiscal year
means the financial year for which consolidated financial statements are being prepared.

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 Currency in which the information is reported should be mentioned in the CbC Report. It
should be the currency of the reporting entity. It has been provided that average exchange
rate be used for conversion of CE financials to reporting entity currency.
3. MNE Groups required to prepare CbC Report
As per the guidelines laid down by OECD, all groups4
under which two or more enterprises are in
different tax jurisdiction are required to file CbC Report. Exemption has been given to MNE groups
having annual consolidated group revenue in the immediately preceding fiscal year of less than EUR 750
million or near equivalent in domestic currency. As per OECD, by virtue of this exemption 85-90% of
the groups will not be covered though groups controlling 90% of the revenue will get covered.
Annual consolidate group revenue will be determined after consolidation by reporting entity
according to consolidation principle of reporting entity tax jurisdiction. It has been clarified that
consolidation of financial information and entities that will be included in consolidation will be as per
consolidation principles of respective tax jurisdictions.
4. Who files the CbC Report in the MNE group
As per the OECD Guidelines, the CbC Report is required to be filed by the ultimate parent entity or
surrogate parent entity or constituent entity other than the ultimate parent entity or the surrogate
parent entity.
4
group means collection of enterprises related through ownership or control that it is required to prepare
consolidate financial statements by virtue of applicable accounting principle for reporting of financial position or by
virtue of being listed on public securities exchange

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Ultimate parent entity - The term “Ultimate Parent Entity” means a Constituent Entity of an MNE Group that meets the following criteria as on the
last day of the fiscal year:
(i) it owns directly or indirectly a sufficient interest in one or more other Constituent Entities of such MNE Group such that it is required to
prepare Consolidated Financial Statements under accounting principles generally applied in its jurisdiction of tax residence, or would be so
required if its equity interests were traded on a public securities exchange in its jurisdiction of tax residence; and
(i) there is no other Constituent Entity of such MNE Group that owns directly or indirectly an interest described in subsection (i) above in the first
mentioned Constituent Entity.
Surrogate Parent Entity means one Constituent Entity of the MNE Group that has been appointed by such MNE Group, as a sole substitute for the
Ultimate Parent Entity, to file the country-by-country report in that Constituent Entity’s jurisdiction of tax residence, on behalf of such MNE Group,
when one or more of the conditions below applies:
a) the Ultimate Parent Entity of the MNE Group is not obligated to file a country-by-country report in its jurisdiction of tax residence; or,
b) the jurisdiction in which the Ultimate Parent Entity is resident for tax purposes does not have Qualifying Competent Authority Agreement
with Constituent entity for exchange of information.
c) there has been a Systemic Failure – there exist Qualifying Competent Authority Agreement between reporting entity and CE but exchange
of information has been suspended or fail to provide the automatically CbC Report.
Steps to check the reporting entity for filing CbC Report
1. If any of the conditions for the appointment of the surrogate parent entity is not applicable,
in that case Ultimate parent entity shall be the reporting entity
2. If any of the conditions for the appointment of the surrogate parent entity is applicable and
the ultimate parent entity appoints the surrogate parent entity, then surrogate parent entity
shall be the reporting entity of the MNE group.
3. If any of the conditions for the appointment of the surrogate parent entity is applicable but
the ultimate parent entity does not appoint surrogate parent entity, then each constituent
entity shall have to furnish the CbC Report in their respective tax jurisdiction

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F. Exchange of CbC Report among countries
BEPS Action Plan 13 has provided for the implementation of system that will enable the exchange of Cb
Reports among MNE group entities. The exchange of CbC Reports can be under Automatic Exchange of
Information through three Model Competent Authority Agreements based on:
1. Convention on Mutual Administrative Assistance in Tax Matters
2. Bilateral Tax Conventions (“DTAA”)
3. Tax Information Exchange Agreements (“TIEAs)
Convention on Mutual Administrative Assistance in Tax Matters – The Convention on Mutual
Administrative Assistance in Tax Matters (“Convention”) was framed to implement the standard for
Automatic Exchange of Information /Common Reporting Standard of OECD to increase transparency by
automatic exchange of information among countries. Article 6 of the Convention requires defining the
scope and manner of automatic exchange of information that is translated as Multilateral Competent
Authority Agreement (“MCAA”). For exchange of CBC Report, Action Plans provides the format of MCAA
to exchange CBC Report that can be signed by the countries who abide to automatically exchange the
CBC Report reports annually. MCAA is multilateral agreement that will be effective for the countries
notified by the countries signing the agreement to exchange the information. First exchange will not be
later than 18 months from the date of close of the financial year for which CbC Report is submitted.
In most cases, exchange of CBC Report is expected to take place through MCAA. India has signed CBC
MCAA on 12.05.2016 alongwith 56 other countries as on date, however has not notified any country as
on date to exchange the information.
MCAA is time and cost efficient in the term it is multilateral and enables agreement between multi
countries by one single agreement.
Bilateral Tax Conventions (“DTAA”) – DTAAs also contain the Article that provides for Exchange of
information bilaterally among the tax jurisdiction entering into DTAAs (Generally Article 26 of the Model
Conventions). Thus Countries can also exchange the CBC Reports where DTAAs between tax jurisdictions
authorizes the automatic exchange of information.

19
DTAA’s of India with most of the countries contains the Article for exchange of information; however,
confidentiality clause contained in it does not make the Article effective.
Tax Information Exchange Agreements (“TIEAs) – TIEAs are agreements specifically entered between
countries for the purpose of exchange of information for specific purpose. Action Plan 13 provides the
draft model of Agreement for exchange of information that can be referred by countries to enter into
TIEAs for Automatic exchange of CbC Reports where it is not possible to exchange through MCAA or
DTAAs.
India has not enters into any TIEA for CbC Reports exchange as on date.
The exchange of CBC Report through above agreements is allowed subject to the following conditions:
 Jurisdictions will ensure the confidentiality of data: This is the major concern of enterprises/tax
jurisdictions for exchange of information that can limit the success of CbC Report.
 Information shared is for specific purpose of assessing high level transfer pricing risk and BEPS
risk and economical and statistical analysis.
 Domestic law is in place for filing of CbC Report for reporting entities. Action Plans aims that
achieving consistency of format of filing by providing the template of CbC Report. It encourages
the jurisdictions to adopt the template prescribed but does not restrict to adopt it without
changes.
G. Important points raised under Action Plan 13 by OECD for
maintaining the three tier documentation
 The documentation should be maintained on contemporaneous basis.
 The local file should be finalized by the due date of filing of return of income, the master file
should also be review and updated by the last date of filing of tax return. CbC Report should be
furnished no later than 1 year from the last date of the fiscal year to which CbC Report to be
filed.

20
 Materiality consideration
Master file – As discussed, master file provides only high level overview of the MNE group.
Accordingly material information should only be formed part of the Master file.
Local File – As per OECD, individual documentation requirement should include specific
materiality threshold that take into account the size and nature of the MNE group. Measures of
materiality may be considered in relative (eg transactions not exceeding a percentage of
revenue) or in absolute terms (eg. transactions not exceeding a certain amount). These
measures should be developed by individual country tax jurisdiction.
CbC Report – It should include all tax jurisdictions in which the MNE group has an entity resident
for tax purposes, regardless of the size of business operations in that tax jurisdiction. So for the
purpose of CbC Report consideration should not be given to material transactions.
 Retention of documents – The documentation requirement should be retained as per the
guidelines of the tax jurisdiction with which filing has been done.
 Frequency of documentation updates – In general, the master file, the local file and the country
by country report should be reviewed and updated annually however, it is probable that where
business descriptions, functional analyses and description of comparables does not change tax
administrations may provide that search need to be updated every three years.
 Language of reports – It should be determined as per the local laws of the jurisdiction where
filing is to be made. However, translated copy of same should be available for exchange of
information.

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