If your company is part of a multinational enterprise (MNE) group operating across borders, Country-by-Country Reporting is one of the most critical compliance obligations in international tax. Introduced globally under OECD BEPS Action Plan 13, CbCR requires large MNE groups to provide tax authorities with a jurisdiction-by-jurisdiction breakdown of income, taxes, and economic activity.
With the Income Tax Act, 2025 replacing the 1961 Act, and the Draft Income Tax Rules, 2026 released by CBDT on 7 February 2026, the three-tier TP documentation framework-local file, master file, and CbCR-has been restructured under Section 171 and Rules 84 and 95-102. This guide explains the thresholds, forms, filing deadlines, penalties, and compliance steps for each tier of documentation under the new rules.
What Is Country-by-Country Reporting and Why Does It Matter?
Country-by-Country Reporting (CbCR), under Section 171(1)(b) of the Income Tax Act, 2025, requires the parent entity or alternate reporting entity of an international group to file a report containing aggregate data on the global allocation of income, profit before tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets for each jurisdiction where the group operates.
CbCR is part of the OECD’s BEPS Action Plan 13-a three-tier documentation framework designed to combat base erosion and profit shifting by multinational enterprises. The three tiers are: (1) local file (transaction-level documentation), (2) master file (group-level overview), and (3) CbCR (jurisdiction-level financial and tax data). For MNEs that rely on income tax return filing (https://www.patronaccounting.com/income-tax-return) services in India, understanding the new Section 171 framework is essential to avoid severe penalties.
India has been an active participant in the OECD BEPS project since 2016 when Section 286 was introduced. Under the new Act, Section 286 is replaced by Section 171(1)(b), with implementing rules restructured as Rules 95-102 (replacing Rules 10DA and 10DB).
Key Terms You Should Know
- Section 171: The unified provision for maintenance and furnishing of TP documentation-covering local file (Section 171(1)(a)), master file, and CbCR (Section 171(1)(b)). Replaces Sections 92D and 286.
- Local File: Transaction-level documentation including functional analysis, benchmarking study, and comparable data. Prescribed under Rule 84. Mandatory if aggregate international transactions exceed Rs 1 crore.
- Master File: Group-level overview including organisational structure, business operations, intangibles, financial activities, and TP policies. Mandatory if international group consolidated revenue exceeds Rs 50 crore.
- CbCR (Country-by-Country Report): Jurisdiction-level report with revenue, profit, tax, employees, and assets data. Mandatory if consolidated group revenue exceeds Rs 6,400 crore (approx. EUR 750 million).
- International Group: A group of two or more enterprises where at least one is located outside the country of the parent entity.
- Parent Entity: The ultimate holding entity of the international group that prepares consolidated financial statements.
- Alternate Reporting Entity: A constituent entity designated by the parent to file CbCR in its jurisdiction (surrogate parent entity).
- BEPS Action 13: The OECD action plan that introduced the three-tier TP documentation framework globally.
Who Must Comply with CbCR and Three-Tier Documentation?
The three tiers of documentation apply to different categories of taxpayers based on monetary thresholds:
1. Local File (Rule 84 / Section 171(1)(a))
Every person entering into international transactions or specified domestic transactions must maintain local file documentation. Detailed documentation under Rule 84 is mandatory if aggregate international transactions exceed Rs 1 crore. Below Rs 1 crore, the taxpayer must still demonstrate arm’s length pricing but is not required to maintain the full prescribed documentation.
2. Master File (Rules 95-96 / Section 171(1)(b))
Every constituent entity of an international group must maintain and file master file information if the consolidated revenue of the international group exceeds Rs 50 crore in the preceding accounting year. The master file provides a global overview of the MNE’s operations, TP policies, and intangible arrangements. Companies that coordinate compliance through tax audit compliance (https://www.patronaccounting.com/tax-audit) services should integrate master file preparation with the tax audit timeline.
3. CbCR (Rules 97-102 / Section 171(1)(b))
The parent entity or alternate reporting entity resident in India must file a CbCR if the consolidated group revenue exceeds Rs 6,400 crore (approximately EUR 750 million) in the preceding accounting year. Indian constituent entities of foreign-parented groups must also file notifications and, in certain cases, the CbCR itself if the parent’s jurisdiction does not have an exchange arrangement with India.
Legal Framework: Old Provisions vs New Provisions
| Aspect | Old Framework (IT Act 1961 / Rules 1962) | New Framework (IT Act 2025 / Rules 2026) |
|---|---|---|
| Local File Section | Section 92D(1) | Section 171(1)(a) |
| Local File Rule | Rule 10D | Rule 84 |
| Master File Section | Section 92D(1) proviso | Section 171(1)(b) |
| Master File Rule | Rule 10DA | Rules 95-96 |
| Master File Forms | Form 3CEAA / 3CEAB | Updated forms under Rules 95-96 |
| Master File Threshold | Rs 50 crore consolidated revenue | Rs 50 crore consolidated revenue (same) |
| CbCR Section | Section 286 | Section 171(1)(b) |
| CbCR Rule | Rule 10DB | Rules 97-102 |
| CbCR Forms | Form 3CEAC / 3CEAD / 3CEAE | Updated forms under Rules 97-102 |
| CbCR Threshold | Rs 6,400 crore (revised from Rs 5,500 crore in 2021) | Rs 6,400 crore (same) |
| Penalty (CbCR Non-Filing) | Rs 5,000-50,000/day (Section 286) | Rs 5,000-50,000/day (Section 171 penalties) |
| Penalty (Master File) | Rs 5 lakh (Section 271GB) | Rs 5 lakh (equivalent under new Act) |
The substantive thresholds and documentation requirements are largely carried forward. The key structural change is the consolidation of all three tiers under a single Section 171, with implementing rules reorganised from 10DA/10DB to Rules 84 and 95-102.
How to Comply with CbCR and Three-Tier Documentation: Step-by-Step
- Determine your tier of documentation. Check consolidated group revenue against the Rs 6,400 crore CbCR threshold, Rs 50 crore master file threshold, and Rs 1 crore local file threshold. Each tier has different documentation and filing requirements.
- Prepare the local file (Rule 84). Maintain contemporaneous documentation including ownership structure, group profile, transaction descriptions, functional analysis, economic analysis with benchmarking, and comparable data. Businesses using statutory audit services (https://www.patronaccounting.com/statutory-audit) should coordinate local file preparation with the statutory and tax audit timelines.
- Prepare the master file (Rules 95-96). Compile group-level information including organisational structure, business description, intangible assets, intercompany financial activities, financial and tax positions, and TP policies. File the master file by the ITR due date.
- Prepare the CbCR (Rules 97-102). Compile jurisdiction-by-jurisdiction data on revenue (related and unrelated), profit before tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets. Identify all constituent entities and their jurisdictions.
- File CbCR notification. Indian constituent entities of international groups must file a notification with DGIT (Risk Assessment) / Joint Director (International Taxation) indicating whether the parent entity is filing CbCR in its jurisdiction and whether an exchange arrangement exists with India.
- File CbCR within 12 months. The CbCR must be filed within 12 months from the end of the reporting accounting year. For a March 2027 year-end, the CbCR is due by March 2028.
- File accountant’s report (Form 56). File the TP accountant’s report certifying international and specified domestic transactions one month before the ITR due date.
Documents and Records Needed for Three-Tier Compliance
- Local file: ownership structure, group profile, transaction descriptions, functional analysis, benchmarking study, comparable data, segmental financials, intercompany agreements
- Master file: organisational structure chart, business description by segment, intangible assets register and TP policies, intercompany financial arrangements, consolidated financial statements, TP policy documentation
- CbCR: revenue (related and unrelated) by jurisdiction, profit/loss before income tax by jurisdiction, income tax paid and accrued by jurisdiction, stated capital by jurisdiction, accumulated earnings by jurisdiction, number of employees by jurisdiction, tangible assets (other than cash) by jurisdiction
- CbCR notification: details of parent entity, reporting entity, exchange arrangement status
- Constituent entity list: name, jurisdiction of incorporation, jurisdiction of tax residence, business activity code
- Form 56 (accountant’s report) certifying all international/specified domestic transactions
- Consolidated financial statements of the international group
- Exchange rate data for converting foreign currency figures to INR
- Prior year CbCR and master file for consistency verification
- DGIT notification acknowledgement
- Evidence of exchange arrangement between India and parent entity’s jurisdiction
- Designation form if alternate reporting entity is appointed
CbCR Thresholds: Three-Tier Documentation Summary
| Tier | Threshold | Rule / Section | Filing Deadline |
|---|---|---|---|
| Local File | International transactions > Rs 1 crore | Rule 84 / Section 171(1)(a) | Contemporaneous; furnish within 10-40 days of AO request |
| Master File | Group consolidated revenue > Rs 50 crore | Rules 95-96 / Section 171(1)(b) | By ITR due date |
| CbCR | Group consolidated revenue > Rs 6,400 crore | Rules 97-102 / Section 171(1)(b) | 12 months from end of reporting year |
| CbCR Notification | All Indian constituent entities of qualifying groups | Rules 97-102 | Before the CbCR filing deadline |
| Form 56 (Accountant’s Report) | All international transactions (no threshold) | Rule 85 / Section 172 | 1 month before ITR due date |
Note: The CbCR threshold of Rs 6,400 crore was revised upward from the original Rs 5,500 crore in 2021 to align more closely with the OECD’s EUR 750 million benchmark. For threshold calculation, consolidated group revenue of the preceding accounting year is used, with the telegraphic transfer buying rate on the last day of that year applied for currency conversion.
Common Mistakes to Avoid in CbCR Compliance
Mistake 1: Confusing the CbCR threshold with the master file threshold. The CbCR threshold is Rs 6,400 crore (consolidated group revenue). The master file threshold is Rs 50 crore. Many Indian subsidiaries of mid-sized MNEs are subject to master file requirements but not CbCR. Conversely, all entities subject to CbCR are also subject to master file requirements. Companies should use professional accounting services (https://www.patronaccounting.com/accounting-services) to accurately calculate group revenue thresholds.
Mistake 2: Not filing the CbCR notification when the parent files abroad. Even if the parent entity files CbCR in its home jurisdiction (e.g., US, UK, Germany), the Indian constituent entity must still file a CbCR notification with DGIT indicating who is filing the CbCR and confirming the exchange arrangement. Missing this notification triggers penalties.
Mistake 3: Using inconsistent data between CbCR and local file. Tax authorities cross-reference CbCR data with local file benchmarking and financial statements. If the CbCR shows different revenue or profit figures for the Indian entity than the local file or audited financials, it triggers risk assessment flags and potential audit.
Mistake 4: Missing the 12-month CbCR filing deadline. CbCR must be filed within 12 months from the end of the reporting accounting year. Unlike the ITR or tax audit report, CbCR has its own independent deadline. Late filing attracts escalating penalties: Rs 5,000/day for the first month, Rs 15,000/day after one month, and Rs 50,000/day after the penalty order is served.
Mistake 5: Not designating an alternate reporting entity. If multiple Indian constituent entities exist in the same group, one must be designated to file the master file. Failure to designate leads to each entity being independently liable for non-filing penalties.
Penalties for Non-Compliance with CbCR and Documentation Requirements
The penalty framework for three-tier documentation is among the most severe in Indian tax law:
Under Section 171 penalties (replacing Section 271GB and related provisions):
- CbCR non-filing: Rs 5,000 per day for the first month of delay, Rs 15,000 per day after one month, and Rs 50,000 per day after the date of service of the penalty order.
- Master file non-filing: Rs 5,00,000 (Rs 5 lakh) for failure to furnish master file information.
- Local file non-maintenance: 2% of the value of each international transaction for which documentation is not maintained (under Section 442, replacing Section 271AA).
- Failure to furnish information to AO: Rs 5,000 per day for CbCR-related information not provided to the Assessing Officer on request.
Additionally, incorrect information furnished in CbCR attracts a penalty of Rs 5 lakh. For master file, inaccurate information attracts a penalty of Rs 5 lakh per instance. These penalties are in addition to any transfer pricing adjustments and interest that may arise from assessment proceedings.
How CbCR Connects with Other Provisions and Global Developments
CbCR under Section 171(1)(b) operates at the intersection of India’s domestic transfer pricing framework and global tax transparency initiatives. The local file (Rule 84) provides transaction-level evidence for arm’s length pricing under Section 165. The master file (Rules 95-96) provides the group-level context in which those transactions occur. CbCR (Rules 97-102) provides the jurisdiction-level data that enables tax authorities to conduct high-level risk assessments.
Globally, CbCR data has become central to the OECD’s Pillar Two global minimum tax initiative. The Transitional CbCR Safe Harbour allows MNE groups to use CbCR data to demonstrate that their effective tax rate in a jurisdiction meets the 15% minimum threshold-potentially eliminating the need for full Pillar Two calculations. For Indian MNEs, this means the accuracy and reliability of CbCR data has implications beyond Indian TP compliance-it directly affects Pillar Two top-up tax liability in jurisdictions implementing the global minimum tax.
The three-tier documentation also feeds into the APA programme (Rules 103-122)-APAs require disclosure of all international transactions and group-level data, much of which overlaps with master file and CbCR content. Companies with active APAs should ensure consistency between APA submissions and three-tier documentation.
What Does CbCR Contain? Data Points Reported
| Data Point | Description |
|---|---|
| Revenue (Unrelated Party) | Total revenue from transactions with entities outside the MNE group, by jurisdiction |
| Revenue (Related Party) | Total revenue from intercompany transactions within the MNE group, by jurisdiction |
| Profit/Loss Before Income Tax | Aggregate profit or loss before income tax for all constituent entities in each jurisdiction |
| Income Tax Paid (Cash Basis) | Total income tax actually paid during the year, including withholding taxes, by jurisdiction |
| Income Tax Accrued | Current year tax accrued on profits/losses of the reporting year, by jurisdiction |
| Stated Capital | Total stated/share capital of all constituent entities in each jurisdiction |
| Accumulated Earnings | Total retained earnings/accumulated profits of all constituent entities, by jurisdiction |
| Number of Employees | Full-time equivalent headcount in each jurisdiction |
| Tangible Assets (Other Than Cash) | Net book value of tangible assets excluding cash and cash equivalents, by jurisdiction |
| Constituent Entity List | Name, jurisdiction of incorporation, tax residence, and main business activity of each entity |
Key Takeaways
Country-by-Country Reporting under Section 171(1)(b) and Rules 95-102 of the Draft Income Tax Rules, 2026 requires large MNE groups (consolidated revenue above Rs 6,400 crore) to file jurisdiction-by-jurisdiction financial and tax data, effective from 1 April 2026.
India’s three-tier TP documentation framework-local file (Rule 84, threshold Rs 1 crore), master file (Rules 95-96, threshold Rs 50 crore), and CbCR (Rules 97-102, threshold Rs 6,400 crore)-is now consolidated under a single Section 171, replacing the earlier Sections 92D and 286.
CbCR must be filed within 12 months from the end of the reporting accounting year. Master file must be filed by the ITR due date. Local file must be maintained contemporaneously and furnished within 10-40 days of an AO request.
Penalties for non-compliance are severe: Rs 5,000-50,000 per day for CbCR delays, Rs 5 lakh for master file non-filing, and 2% of transaction value for local file non-maintenance-making timely and accurate documentation essential.
CbCR data is increasingly central to global tax initiatives including the OECD Pillar Two Transitional CbCR Safe Harbour, making data accuracy and reliability important beyond Indian TP compliance.
Need Help with CbCR and Three-Tier Documentation Compliance?
Preparing CbCR, master file, and local file documentation requires coordination across global entities, jurisdictions, and data sources. The escalating penalty structure for non-compliance-and the increasing importance of CbCR data for Pillar Two planning-makes accuracy and timeliness essential.
Explore our income tax compliance services (https://www.patronaccounting.com/income-tax-return) for expert guidance on three-tier TP documentation, CbCR filing, and master file preparation under the new Act.
For queries, reach out at +91 945 945 6700 or WhatsApp us directly.
