Action 13 – Three-tiered documentation MF 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

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

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

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

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

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.