The concept of 'secondary adjustment' was introduced in 2017 to align transfer pricing provisions with international best practices. As a concept, secondary adjustment arises when the taxpayer agrees to a transfer price, which is different from what is recorded in the books of accounts. The taxpayer can agree to this different transfer price, either suo moto at the time of filing a tax return, or once the transfer pricing adjustment is done by the tax officer and not further litigated, or during the APA or Mutual Agreement Procedure (MAP) proceedings. The provisions require Indian taxpayers to repatriate the difference in transfer price as per tax and as per books of accounts (excess money) from the overseas AE within 90 days. In case the repatriation is not made within 90 days, it would be deemed as a loan given by the taxpayer to the AE, and the interest shall be computed till the time the repatriation is made by the AE. However, the Finance Bill (No. 2) of 2019, had provided certain clarifications regarding the effective implementation of these provisions, which are as follows:
Master File- Rule 10DA : The information to be captured in the Master File can be broadly classified in four categories, i.e., (i) Description of the business, (ii) Particulars of intangibles, (iii) Particulars of financing activities, (iv) General information. Additionally, the groups consolidated financial statement is also expected to be included.
The applicability and timelines required for the Master File are as follows:
Entity | Applicability | Form to be filed | Due Date |
---|---|---|---|
Indian subsidiary / affiliate of the multinational group | A constituent entity irrespective of:
|
Part A of Form No. 3CEAA | By due date of furnishing the return of Income (i.e., 30 November) |
A constituent entity passing the prescribed thresholds | Part B of Form No. 3CEAA | By due date of furnishing the return of Income (i.e., 30 November) | |
The designated entity, where there are multiple constituent entities resident in India | Form No. 3CEAB | At least 30 days before the due date of filing Form No 3CEAA |
The applicability and timelines required for CbCR are as follows:
Entity | Applicability | Form to be filed | Due Date |
---|---|---|---|
Indian subsidiary/affiliate of the multinational group, wherein the parent entity is not a resident of India | Intimation of details of parent entity/alternate reporting entity which will file the CbCR | Form No. 3CEAC | 2 months prior to furnishing the CbCR |
Parent entity or alternate parent entity in India | Every parent entity or the alternate reporting entity resident in India | Form No. 3CEAD | The due date for furnishing the CbCR is on or before the due date for filing of Return of Income for the relevant accounting year of the group. |
Indian subsidiary/affiliate of the multinational group, wherein the parent entity is not a resident of India | Intimation of multiple constituent group entities in India | Form No. 3CEAE | No timeline mentioned in the rules. This needs to be clarified by the CBDT. |
The Finance Bill (No. 2) of 2019, had provided certain clarifications regarding the definition of accounting year:
In the case of an alternate reporting entity of an international group, wherein the parent entity is not a resident of India, the reporting accounting year shall be the one applicable to the parent entity. The amendment will take effect retrospectively from 1 April 2017 and will, accordingly, apply in relation to assessment year 2017-18 and the subsequent assessment years.
Penalty
From a comprehensive understanding perspective, the penalties prescribed in the Indian Income Tax Act, 1961 with respect to the failure to furnish the enhanced transfer pricing documentation are as follows: