India is fast moving ahead towards increasing its growth trajectory and consolidating foreign investments in India. With this regard, the move towards easy taxation like GST has been proposed, and Transfer Pricing regulations too have been eased down. Given a situation where India has a large volume of inter-company dealings, there exists a huge demand to reform the transfer pricing documentation law. The Union Government of Finance Ministry in India made several proposals for amendments and changes to the transfer pricing policy in India. It was discussed at length in the last budget 2017 presented in February. Let’s take a look at the proposals to amend the provisions of the Transfer Pricing Regulations of India.
- The transfer pricing documentation and certification compliance requirement covering domestic expenditure (included u/s 40A (2) of the IT Act) is removed with effect from the current fiscal year (namely FY 2016-17). It was an initiated move as it unnecessarily offered compliance burden on taxpayers. It also gave back minimal or zero tax impact on the Government exchequer because the rule covered only movement of funds from one domestic taxpayer to another taxpayer.
- The Government has correctly retained the compliance for TP documentation and certification at the time of computing profits that are linked to incentives or tax holiday schemes. It was taken to prevent the propensity of profit shifts from non-tax holiday undertakings to businesses enjoying tax holidays.
- The secondary adjustment provisions in the Transfer Pricing for the first time. It was done so that the taxpayers can make required secondary adjustments on transfer pricing as and when they carry on with primary adjustments on the transfer pricing in certain situations.
- Now the time for completing assessments has been reduced from 21 months to 18 months with effect from AY 2018-19. The beginning for AY 2019-20, the deadline would be 12 months from the end of the year of assessment in which the income was first assessable.
- Also there would now be a thin capitalization rule provision existing against allowing of deductions for certain payments of interest. It is done in line with recommendations from the OECD’s base erosion and profit shifting (BEPS) project. No more will there be any deduction that allowed an Indian company pay interest that exceeded INR one crore in respect of debt issued or guaranteed by the non-resident related party and one that is determined to be excess interest.
- Penalty provisions have been revised in the case of furnishing incorrect information
For a detailed understanding of the provision made on the TP regulations in India, a recommendation to all SME’s is to go for a Transfer Pricing Advisory. Book your appointment today for an in-depth conversation on transfer pricing regulations and how this can be managed with the assistance of expert professionals.