Global FMCG groups with manufacturing operations in India are subject to master file and country-by-country reporting obligations under Section 511 of the Income-tax Act, 2025. These requirements are part of the OECD's Base Erosion and Profit Shifting (BEPS) initiative, designed to enhance transparency and enable tax authorities to assess transfer pricing risks.
The Statutory Framework Under Section 511
Section 511(1) requires every constituent entity resident in India to notify the prescribed income-tax authority in the form and manner, on or before such date, as may be prescribed, whether it is the alternate reporting entity of the international group or the details of the parent entity or the alternate reporting entity, if any, of the international group.
Section 511(2) requires every parent entity or the alternate reporting entity, resident in India, to, for every reporting accounting year, in respect of the international group of which it is a constituent, furnish a report to the prescribed income-tax authority within twelve months from the end of the said reporting accounting year, in such form and manner, as may be prescribed.
Section 511(3) provides that the report in respect of an international group shall include the aggregate information in respect of the amount of revenue, profit or loss before income-tax, amount of income-tax paid, amount of income-tax accrued, stated capital, accumulated earnings, number of employees and tangible assets not being cash or cash equivalents, with regard to each country or territory in which the group operates. It also includes the details of each constituent entity of the group, the nature and details of the main business activity or activities of each constituent entity, and any other information as may be prescribed.
Who is Required to File
Section 511(1) requires every constituent entity resident in India to notify the prescribed income-tax authority whether it is the alternate reporting entity or the details of the parent entity or alternate reporting entity. This notification must be made in Form No. 58 two months prior to the due date for furnishing of report.
Section 511(2) requires every parent entity or the alternate reporting entity, resident in India, to furnish the report. Section 511(4) provides that a constituent entity of an international group, resident in India, other than the parent entity, shall furnish the report if the parent entity is resident of a country where the parent entity is not obligated to file the report, with which India does not have an agreement providing for exchange of the report, or where there has been a systemic failure of the country or territory.
Threshold for Filing
Rule 124(7) provides that the total consolidated group revenue of the international group must exceed ₹6,400 crore for the master file and country-by-country reporting requirements to apply. Where the total consolidated group revenue of the international group is in foreign currency, the rate of exchange for the calculation of the value in rupees of such total consolidated group revenue shall be the telegraphic transfer buying rate of such currency on the last day of the accounting year preceding the accounting year.
Content of the Master File
The master file must contain comprehensive information about the international group. This includes a list of all entities of the international group along with their addresses, a chart depicting the legal status of the constituent entity and ownership structure of the entire international group, and a description of the business of international group during the accounting year.
The business description must include the nature of the business or businesses, the 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 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.
The master file must also contain a description of the overall strategy of the international group for the development, ownership and exploitation of intangible property, a list of all entities of the international group engaged in development and management of intangible property, a list of all the important intangible property or groups of intangible property owned by the international group, a list and brief description of important agreements among members of the international group related to intangible property, a detailed description of the transfer pricing policies of the international group related to research and development and intangible property, and a description of important transfers of interest in intangible property.
The financing arrangements must be detailed, including a detailed description of the financing arrangements of the international group, a list of group entities that provide central financing functions, 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 brief description of the existing unilateral advance pricing agreements and other tax rulings.
Filing Deadlines
Section 511(2) requires the report to be furnished within twelve months from the end of the reporting accounting year. The notification under Section 511(1) must be made in Form No. 58 two months prior to the due date for furnishing of report.
Section 511(4) provides that the period for furnishing the report by a constituent entity shall be twelve months from the end of the reporting accounting year. In case the parent entity is resident of a country where there has been a systemic failure, the period for submission shall be six months from the end of the month in which said systemic failure has been intimated.
Systemic Failure
Section 511(10)(l) defines "systemic failure" with respect to a country or territory as meaning that the country or territory has an agreement with India providing for exchange of report, but in violation of the said agreement, it has suspended automatic exchange, or has persistently failed to automatically provide to India the report in its possession in respect of any international group having a constituent entity resident in India.
Where a systemic failure is intimated, the constituent entity must file the report within six months from the end of the month in which the systemic failure is intimated. This provides a mechanism for ensuring that reporting continues even where the primary jurisdiction fails to provide the required information.
Penalties for Non-Compliance
Section 459 provides penalties for failure to furnish the report or for furnishing inaccurate information. If any reporting entity fails to furnish the report for a reporting accounting year, the prescribed authority may impose a penalty of ₹5,000 for every day for which the failure continues, if the period of failure does not exceed one month, and ₹15,000 for every day for which the failure continues beyond the period of one month.
If the reporting entity fails to produce the information and documents within the period allowed, the prescribed authority may impose a penalty of ₹5,000 for every day during which the failure continues, beginning from the day immediately following the day on which the period for furnishing the information and document expires.
If the failure continues after an order imposing a penalty has been served, the prescribed authority may impose a penalty of ₹50,000 for every day for which such failure continues beginning from the date of service of such order. If the reporting entity provides inaccurate information, the prescribed authority may impose a penalty of ₹5,00,000 if the entity has knowledge of the inaccuracy at the time of furnishing the report but fails to inform the prescribed authority, or discovers the inaccuracy after the report is furnished and fails to inform the prescribed authority and furnish correct report within fifteen days, or furnishes inaccurate information in response to a notice.
Best Practices for FMCG Groups
Global FMCG groups with Indian manufacturing units should ensure compliance with master file and country-by-country reporting obligations. The group should identify the parent entity and whether it is resident in India or in another jurisdiction. If the parent entity is not resident in India, the group should determine whether the jurisdiction has an agreement for exchange of information with India.
The group should ensure that the master file is prepared accurately and completely, containing all required information. The information should be consistent with the group's financial statements and transfer pricing documentation. The group should also ensure timely filing of the notification and report.
Comprehensive documentation should be maintained to support the information provided in the master file. The group should also monitor for systemic failure notifications and be prepared to file the report within the shortened timeframe. Regular review and updating of the master file should be conducted to ensure it remains accurate and complete.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on master file obligations, please consult qualified legal and tax professionals.
Need Expert Legal Guidance?
Navigating the complex master file and country-by-country reporting requirements for global FMCG groups requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive advisory services on master file preparation, filing, and compliance. Contact us for expert guidance on your master file obligations.