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CA Final · Direct Tax Laws & International Taxation · Fundamentals of BEPS

Alpha Ltd, an Indian company, is the parent of a multinational group whose consolidated group revenue in the preceding year was well above the threshold for country-by-country reporting. Which statement about the BEPS Action 13 three-tier documentation approach is correct?

Under Action 13, the master file provides a high-level overview of the group's global business and transfer pricing policies, while the local file details material related-party transactions of the specific local entity. The country-by-country report adds jurisdiction-wise data on income, taxes and activities.

  1. AThe master file gives a high-level overview of the group's global business and transfer pricing policies, while the local file covers specific intercompany transactions of the local entityCorrect
  2. BThe master file contains entity-wise details of each controlled transaction of the local entity, while the local file gives the global overview
  3. CCountry-by-country report is a tax return to be filed by each constituent entity with the local tax authority only
  4. DThe three-tier approach applies only to groups having no Indian entity

Explanation

Action 13 prescribes a master file with a group-wide overview of business and transfer pricing policies, a local file with material related-party transactions of the local entity, and a country-by-country report showing the allocation of income, taxes and activities by jurisdiction. The second option swaps the roles of the master file and local file, so it is wrong.

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