TRANSFER PRICING IN INDIA
Transfer Pricing Service for Foreign & Domestic
Ezibiz India provides all types of Transfer Pricing (“TP”) services to Indian Companies, multinational companies. We provide PAN India following TP Services:
What is the Meaning of Transfer pricing (TP)?
Transfer Pricing meaning has not been defined anywhere in the Income Tax Act, 1961. Therefore, we have to go by general parlance. Transfer price is the actual price charged between 2 related entities in a transaction which may be part of a multinational or domestic group. Since tax rates vary from country to country, there is a possibility that multinational group company may decide to keep prices of a transaction between each other in such a way that group tax liability is minimized. This can be achieved by keeping prices in such a manner that countries having high tax rates should book less profit so that less tax is paid by them.
Transfer Pricing Audit in India
As per provisions of Indian Transfer Pricing Regulations, apart from Tax audit and statutory audit, every assesse who has entered into international transaction during the year or specified domestic transactions during the year are required to conduct their transfer pricing audit and furnish transfer pricing audit report also called as accountant report in form 3CEB on or before 30th November of each year. This is called as Transfer Pricing Audit in India.
Transfer Pricing Study or TP Study
Further, every assesse has to maintain proper Transfer Pricing documentation of international and domestic transactions which will be asked by Transfer Pricing officer at time of scrutiny assessment. This is called as Transfer Pricing Study or TP Study or Benchmarking study. Besides documentation, Transfer pricing study report also contains methods applied for determining arm’s length price as well as manner of arriving of same.
It may be noted that failure to obtain Transfer Pricing Audit report or maintaining transfer pricing documentation in form of TP study or transfer pricing study report would attract heavy penalty.
Transfer Pricing Audit Limit
For international transactions, there is no monetary limit for conducting transfer pricing audit, However for domestic transactions, transfer pricing audit would be required only if value of transactions exceed Rs 15 crore.
Types of Transfer Pricing (TP) provided by us
- Issue & Uploading of Transfer pricing Audit report in Form 3CEB wrt international and specified domestic transaction entered into by associated enterprises.
- Benchmarking and issue of TP study report
- Structuring Cost Sharing Arrangements for domestic and international inter-company transactions
- Supply Chain Restructuring
- Advisory relating to maintenance of proper documentation from TP perspective.
- Advisory and representation before TP officer at time of revenue assessment (audit)
- Assistance in Drafting Agreements from transfer pricing perspective
- Advisory relating to Advance Pricing Agreement and Safe Harbor Rules.
Time Involved in the Transfer Pricing Process
We endeavor to provide timely service, however, actual time depends upon quantum of work and type of TP services. Normally, it takes approx. 1 week time for TP audit report and approx. 15-20 days in issue of TP Study report subject to availability of all the documents.
Type of Transfer Pricing methods
Section 92 C read with Rules 10B and 10AB has prescribed 6 methods for determining arm’s length price namely,
- Comparable Uncontrolled price method [CUP method]
- Resale Price method [RPM method]
- Cost plus method [CPM method]
- Profit Split method [PSM method]
- Transactional Net Margin method [TNMM]
- Any other method as may be prescribed by CBDT. CBDT has prescribed “any other method” by notifying Rule 10AB we 23rd March 2012
Out of above, First 5 methods are OECD recognized methods. Further, OECD has divided the methods above in 2 categories.
- Traditional Transactions method [Also called as Transactional Based Approach]. Here CUP, RPM, and CPM are used.
- Transactional profits method. Here, PSM and TNMM are used.
Documents Required for Transfer Pricing
- Transfer pricing is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. For example, if a subsidiary company sells goods to a parent company, the cost of those goods paid by the parent to the subsidiary is the transfer price. In principle, a transfer price should match either what the seller would charge an independent, arm’s length customer, or what the buyer would pay an independent, arm’s length supplier.
- In an arm’s length transaction is a transaction in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm’s length transaction allows the market to ensure that both parties in the deal are acting in their own self-interest and are not subject to any pressure or duress from the other party. It also assures third parties that there is no collusion between the buyer and seller.
- Section 92 to 92 F of Income-tax Act, 1961 and Rule 10 A to 10 E of Income-tax Rules, 1962 requires international transactions to be arm’s length in nature when occurring between associated enterprises.
- Taxpayers are required to maintain, on an annual basis, a set of extensive information and documents relating to international transactions undertaken with AEs. Rule 10D of the Income-tax Rules, 1962 prescribes detailed information and documentation that the taxpayer has to maintain. Noncompliance will lead to heavy penalty.
- Every Company who has entered into any international transaction or specified domestic transaction with any of its associated enterprise has to get the audit done (Transfer Pricing Audit) from specified persons and upload the TP report on website of Income tax department by 30th November of every AY. Noncompliance will lead to heavy penalty.
- Yes, it is also applicable to domestic Transactions as well. The Finance Bill 2012 has expanded the scope of transfer pricing (TP) provisions by including domestic transactions for the first time.
The following transactions (“specified domestic transactions”) will be included if their aggregate exceeds INR 50 million in an Financial Year
- i) Any expenditure to which section 40A(2)(b) applies ii) Any transaction referred in section 80A iii) Any transaction with a person specified in 80-IA(10) iv) Any transaction referred in Chapter VI-A, Section 10AA to which 80(10) or 80(18) applies v) Any other transaction which may be prescribed