Whenever an entity undertakes any international transaction or specified domestic transaction, the transfer pricing regulations of income tax become applicable. This attracts multiple compliances as well as requirements to maintain information and documents. When it comes to the maintenance of records, Section 92D lays down the explicit requirements. This has also been emphasised in BEPS Action Plan 13 wherein the constituent entities are required to maintain a Country-by-Country Report and a Master File as per transfer pricing provisions in Part B of Form 3CEAA
Section 92D places responsibility to maintain records not only on the entity that has entered into the transaction but also on the constituent entity of the international group. As per Section 92D(1)(ii), a constituent entity of an international group shall maintain prescribed information and documents with respect to the international group. This information and documents are known as Master File and shall be prepared as per Rule 10DA in Form 3CEAA.
Who Has to File Form No. 3CEAA?
As stated earlier, Rule 10DA in Form 3CEAA prescribe the information and document that a constituent entity shall maintain and furnish to the income tax authorities in Form No 3CEAA. Discussing about Part B of Form No. 3CEAA applicability-
- If the consolidated revenue of the international group as reflected in the consolidated financial statements during the accounting year exceeds Rs. 500 crores; and
- The aggregate value of the international transactions during the accounting year as per books of accounts-
- Exceeds Rs. 50 crores or
- In respect of sale, purchase, lease, transfer or use of intangible property exceeding Rs. 10 crores
Then the constituent entity of the international group shall maintain all the documents and information as specified under Rule 10DA in Form 3CEAA.
Particulars of the Master File in Form 3CEAA – Rule 10DA
Master File in Form No. 3CEAA shall include the following information:
- A list of all the entities of the international group along with the addresses;
- A chart that depicts the legal status of the constituent entity and ownership structure of the entire international group;
- Description of the business of the international group during the accounting year including-
- Nature of business or businesses;
- Important drivers of profits of such business or businesses;
- A description of the supply chain for the five largest products or services of the international group in terms of revenue and any other products including services amounting to more than 5% of consolidated group revenue;
- A list and a brief description of important service arrangements made among members of the international group, other than those for research and development services;
- A description of the capabilities of the main service providers within the international group;
- Details about the transfer pricing policies for allocating service costs and determining prices to be paid for intra-group services;
- A list and description of the major geographical markets for the products and services offered by the international group;
- A description of the functions performed, assets employed and risks assumed by the constituent entities of the international group that contribute at least 10% of the revenues or assets or profits of such group; and
- A description of the important business restructuring transactions, acquisitions and divestments
- A description of the overall strategy of the international group for the development, ownership and exploitation of intangible property, including the location of principal research and development facilities and their management;
- A list of all entities of the international group engaged in the development and management of intangible property along with their addresses;
- A list of all the important intangible property or groups of intangible property owned by the international group along with the names and addresses of the group entities that legally own such intangible property;
- A list and a brief description of important agreements among members of the international group related to intangible property, including cost contribution arrangements, principal research service agreements and license agreements;
- A detailed description of the transfer pricing policies of the international group related to research and development and intangible property;
- A description of important transfers of interest in intangible property, if any, among entities of the international group, including the name and address of the selling and buying entities and the compensation paid for such transfers;
- A detailed description of the financing arrangements of the international group, including the names and addresses of the top ten unrelated lenders;
- A list of group entities that provide central financing functions, including their place of operation and of effective management;
- A detailed description of the transfer pricing policies of the international group related to financing arrangements among group entities
- A copy of the annual consolidated financial statement of the international group; and
- A list and a brief description of the existing unilateral advance pricing agreements and other tax rulings in respect of the international group for allocation of income among countries.
Filing of Form No. 3CEAA
The above information shall be submitted to the Joint Director [as referred to in Rule 10DB (1)] in Form No. 3CEAA of income tax on or before the due date for furnishing the return of income under Section 139(1). Further, if the international group has more than one constituent entities, then Form 3CEAA can be furnished by any of the constituent entity provided it has been authorised to do so by the international group and the same has been communicated to the Joint Director at least 30 days before the due date to furnish Form No. 3CEAA.
The Constituent entity shall furnish Part A of Form 3CEAA even if the conditions specified supra are not satisfied.
Master file shall be kept and maintained for a period of 8 years from the end of the relevant assessment year. Further, for the purpose of conversion of foreign currency consolidated group revenue into INR, the telegraphic transfer buying rate as on the last date of the accounting year shall be used.
Above are the explicit provisions for maintenance of the master file under Transfer Pricing in Form 3CEAA of the income tax. In case you need any assistance, please feel free to contact the ASC Group.