1. Action 13 – Three-tiered documentationMF
Provides a high level overview of the MNE. The objective is to explain MNE’s transfer pricing policies in the context of its global economic, legal, financial and tax profile
The Master File would cover following:
A description of the business including important drivers of business profit, supply chain etc.
Information about Intangibles including the strategy for the development of intangibles, transfer pricing policies related to R&D and intangibles, important transfers of intangibles etc.
Important intra-group services including functional analysis describing principal contributions to value creation, important business restructurings etc.
Intra-group financial activity including transfer pricing polices relating to financing etc.
CbCR
Contains certain information relating to the global allocation of the MNE’s income and taxes paid together with certain indicators
CbCR would cover high level information regarding
global allocation of the MNC’s revenue
profit,
taxes,
assets
employees etc.
OECD has prescribed format of CbCR and the same has been adopted by many countries LF
Regulations that already exist in the law and the same may continue or be aligned to the recommendations of the OECD
Local file requirements are likely to be aligned to each country’s documentation requirements
Generally, local file contains benchmarking analysis of transactions entered by local entity with its group affiliates

2. CbCR Requirements
While the primary purpose of the CbCR is to provide information to a tax authority to enable it to undertake a transfer pricing risk assessment, it is acknowledged that the data will be used to assess wider BEPS related risks
The CbCR contains information not previously provided to tax authorities.
The country-by-country report requires aggregate tax jurisdiction wide information relating to the global allocation of:
The income;
The taxes paid;
Certain indicators of the location of economic activity among tax jurisdictions in which the MNE group operates;
Listing of all the Constituent Entities for which financial information is reported, including tax jurisdiction of incorporation, where it is different from the tax jurisdiction of residence, as well as the nature of the main business activities carried out by that Constituent Entity
Tax Jurisdiction
Unrelated Party Revenue
Related Party Revenue
Total Revenue
Profit (loss) before income tax
Income tax paid (on a cash basis)
Income tax accrued – current year
Stated Capital
Accumulated Earnings
Number of employees
Tangible Assets other than Cash and Cash Equivalents
Country A 
Country B
Not resident in any tax jurisdiction
Tax Jurisdiction
Constituent entities resident in the tax jurisdiction
Tax jurisdiction of organisation or incorporation if different from tax jurisdiction of residence
Activities
Research and development
Holding or Managing intellectual property
Purchasing or procurement
Manufacturing or production
Sales, marketing or distribution
Admin, 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
Country A
Entity A
Country B 
Entity B
Entity C
PE 1

3. CbCR Analytics Risk assessment
Inferences that a tax authority might draw from CbCR data
Total Revenue per Employee
PBT per Employee
Unrelated Party Revenue/Total Revenue.
Income Tax Accrued/PBT (ETR)
ETR versus statutory tax rate
Profit per employee versus ETR
Revenue per employee versus PBT per employee.
Ratios
PBT/Total Revenue – approximation of operating margin.
PBT/(Total Revenue – PBT) – approximation of net cost plus.
PBT/(stated capital plus accumulated earnings) – approximation of return on capital employed.
PBT/Tangible assets – approximation of return on assets.
Profit level indicators
The following characteristics may need to be explained in the Master File/Local File
If across MNC, profit per employee versus ETR is inversely proportional.
If there is a big difference between ETR and statutory tax rate it might be necessary to explain facts such as brought forward losses.
A low ratio of unrelated party revenue versus total revenue, means significant intra-group transactions.
Low ETR.
If across MNC, total revenue per employee versus PBT per employee is inversely proportional.
Characteristics tax authorities will want to understand
How do the profit level indicators compare to transfer pricing policy?
How do the profit level indicators vary between countries/regions? Are there trends that need to be explained?
Are the returns consistent by function? What are the reasons for outliers?
Interpreting Group transfer pricing policy

4. Country-by-Country reporting template – Indian MNC Group
Amount in USD mio
Table 1 - Overview of allocation of income, taxes and business activities by tax jurisdiction` (extract)
CbyC Template –Page 1* (refer Annexure 2 for entity wise details)
Country
Revenue
Profit (loss) before income tax
Income tax accrued – current year
Stated capital and Accumulate earnings
Number of employees
Tangible assets other than cash and cash equivalents
Related party
Unrelated party
Total
India
150
450
600 80 15
1000
900
1200
Switzerland 20 2
0.2 50 1 10
Ireland
200 25 3
550
Italy
0.05 5
Germany
0.06
Trigger Area#
PBT per Employee
Difference between Effective tax rate and statutory tax rate
PBT/Total Revenue
PBT/ Tangible assets
0.09
15 %
0.13
0.07 2 -
0.1
0.2
1.67
0.5
0.01
0.04
Royalty Income
Distribution HUB
Table 2 - List of all the Constituent Entities of the MNE group included in each aggregation per tax jurisdiction (extract)
CbyC Template –Page 1* (refer Annexure 2 for entity wise details)
Tax Jurisdiction
Research and Development
Holding or Managing Intellectual Property
Purchasing or 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
India √
Switzerland
Ireland
Italy
Germany

5. Case study – A cost plus IT services provider
Aspects
Local file
Alignment with MF, CbCR and other information sources
Functions
Employees undertake routine functions
Employees are supervised by overseas AEs
Number of employees in India vs AEs
Number/hierarchy of senior employees in India
Social Media Profiles, Blogs of key employees in India
Indian entity’s website & press releases
Employee awards citation
Value Drivers & Supply Chain
No Discussion
Role of Products and Product development
India’s role in the supply chain
Intangibles
No Intangibles owned in India
Location of legal owners of the Intangibles
How intangibles are managed
No of employees in such locations and their profitability
Patents co-authored by Indian employees
Tax rate
~35%
Global ETR/ETR of AEs
Revenues/profits/employees in low tax jurisdictions
Pricing policy
Limited discussion
Pricing policy across transactions/jurisdictions
Rulings and APAs

6. CbCR statistics by US IRS (2016) – India perspective
Particulars
Number of Indian MNE groups
ETR (%)
Total Indian entities reported (A)
593
26.5%
Of (A), Groups with Positive PBT
456
23.2%
Of (A), Groups with Negative or Zero PBT
137 NA
Major Industry Groups in India
Agriculture, forestry, fishing & hunting, mining, quarrying, oil & gas extraction, utilities, & construction 11
Manufacturing
273
14.5%
Wholesale and retail trade, transportation & warehousing 75
Information 69
51.7%
Finance and insurance, real estate & rental & leasing 67
35.1%
Professional, scientific, & technical services 46
19.0%
Management of companies & enterprises, all other services (except public administration) 52
40.4%
Note: The combined profit per employee ratio for all jurisdictions is ~51,500 whereas for Asia and India the same is ~32,500 and ~10,500 respectively.