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Transfer Pricing

Transfer Pricing

Any cross-border transaction between two associated or related parties are subject to transfer pricing provisions in India. With the growing economic activity of the multinational groups across the globe, there had been growing concerns over manipulation of the price charged or paid in the intra-group transactions. The Indian Government introduced Transfer Pricing Regulation vide Finance Act, 2001. 

The Indian Transfer Pricing regulation provide for selecting the most appropriate method among the various transfer pricing methods to justify the arm’s length nature of the transactions.

The various methods prescribed by the Indian Transfer Pricing regulation are: 

  • Comparable uncontrolled price method;
  • Resale price method;
  • Cost plus method;
  • Profit split method;
  • Transactional net margin method; and 
  • Such other method as may be prescribed by the Board. 

Over the years, transfer pricing regulation in India are becoming increasingly complex. The last several years witnessed substantial litigation on transfer pricing-related issues. These issues covered topics ranging from simpler topics on comparability to more complex economic concepts on re-characterization, marketing intangibles, cost-sharing arrangements, financial transactions etc. With the introduction of base erosion and profit shifting (BEPS), the complexity in the transfer pricing provision is further increased. Therefore, it is imperative for businesses to align their related party transactions with acceptable transfer pricing policies. 

At ASC, we understand the complexity of the transfer pricing regulation in India and abroad with our rich experience and global presence, and provide end-to-end solutions to our clients which include both Indian and foreign enterprises. 

Our team of professionals works closely with the clients in order to enable them to assess and manage the impact of domestic as well as cross-border related party transactions. Our services comprise transfer pricing planning for new related party transactions, transfer pricing documentation and transfer pricing benchmarking. 

Our key services include the following:

  • Advising companies on devising effective transfer pricing strategies considering their nature of business operations and related party transactions;
  • Analyzing the nature of business operations and related party transactions and suggesting the most appropriate methods;
  • Assisting in maintaining the transfer pricing documentation, viz, report in Form 3CEB, country by country reporting, master file, transfer pricing study report as required by the Indian Transfer Pricing regulations, and filing of the same with the Indian Revenue Authorities;
  • Representation before the Indian Revenue Authorities for audit/scrutiny of the transfer pricing issues;
  • Representation before the Dispute Resolution Panel and Commissioner of Income-tax (Appeals); 
  • Transfer pricing due diligence. 

Frequently Asked Questions

Q
What are the various methods to calculate the arm’s length price for Transfer Pricing?
A

Following are the methods to calculate the arm’s length price for transfer price:

  • Transactional Net Margin Method
  • Resale Price Method
  • Cost Plus Method
  • Comparable Uncontrolled Price Method
  • Profit Split Method
Q
What are the obligations for maintaining records that an Indian taxpayer should comply with regard to transfer pricing?
A

The taxpayers shall maintain all the information and documentation with respect to their transactions with associated enterprises. Rule 10D of the Income Tax Rules prescribes the information and documents that shall be maintained by the taxpayers.

Q
What are Safe Harbour rules for the determination of arm’s length price under Transfer Pricing?
A

Safe Harbour refers to the circumstances where the income tax authorities shall accept the transfer price or the income deemed to accrue or arise u/s 9(1)(i) as declared by the assessee. Thus, safe harbour rules indicate certain circumstances where the income tax authorities shall accept the transfer price or income as declared by the assessee.

Q
What are Advance Pricing Agreements?
A

Advance Pricing Agreement (APA) is an agreement between the income tax authority and the taxpayer on an appropriate transfer pricing method entered for specific transactions over a fixed period of time.

Q
What is the validity and applicability of Advance Pricing Agreements?
A

The validity of the advance pricing agreements shall be such as is specified in the agreement which shall not exceed 5 consecutive previous years. The advance pricing agreement shall be binding on:
The person in whose case and the transaction in respect of which the agreement has been entered and The Principal Commissioner or the Commissioner and all the income tax authorities that are subordinate to him in respect to the said person and the transaction.

Q
What are primary and secondary adjustments in relation to the transfer pricing Methods?
A

Primary adjustments in relation to the transfer price means the determination of the transfer price as per the arm’s length price resulting in an increase of the total income or reduction of the loss. Whereas, secondary adjustments relate to the adjustments in the books of accounts of the assessee and the associated enterprise to reflect the actual allocation of the profits between them that is consistent with the transfer price as determined because of the primary adjustment.

Q
FAQs for Transfer Pricing under Income Tax Act
A
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