On 5 July 2019, the Minister of Finance presented the Finance (No.2) Act for the financial year 2019-20. The act changes the following transfer pricing rules:

Documentations requirements:

Under the new amendments, constituent entity of an International group shall now be required to keep and maintain master file under Section 92D and file required form even when there is no international transaction is undertaken by such constituent entity. With this amendment, the constituent entities will be required to file Part ‘A’ of Form No. 3CEAA even if there are no international transactions. This amendment will take effect from the 1st April, 2020 and will, accordingly, apply in relation to the assessment year.

Country-by-Country Report (CbCR):

The new Act proposed to provide for rationalization of the definition of “accounting year” for alternate reporting entity, which needs to file a country by-country report. The amendment will take effect retrospectively from the 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.

Secondary Adjustment:

India, for the first time, had introduced secondary adjustment provisions under Section 92CE of the Income Tax Act, 1961 (‘the Act’) vide Finance Act, 2017 that aligned with the international best practices.

In order to make the secondary adjustment regime more effective and easy to comply with, the 2019 budget proposed to simplify the provisions of secondary adjustment (in case of transfer pricing) by providing that instead of interest payment every year, the assesse shall have an option to make one-time payment of tax of specified amount. The amendment will take effect retrospectively from the 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.

Another clarification proposed in the bill is that the secondary adjustment provisions apply only to APAs signed on or after 1 April 2017. A refund of the previously paid taxes under the previously amended section is not permitted.

APA:

The Bill proposed to clarify that once an APA has been signed and modified return is filed by the assesse, the assessing officer needs to only modify the total income in accordance with the APA. This amendment will take effect from 1st September, 2019.