SCOPE & APPLICABILITY
Transfer Pricing Regulations (“TPR”) are applicable to all enterprises that enter into an ‘International Transaction’ or ‘Specified Domestic Transactions (SDT)’ with an ‘Associated Enterprise (AE’s)’ or Specified Person respectively. Therefore, generally it applies to all cross border transactions entered into between associated enterprises and SDT as prescribed u/s 92BA. It even applies to transactions involving a mere book entry having no apparent financial impact.
WHAT IS AN INTERNATIONAL TRANSACTION?
An International transaction means a transaction between two or more AE’s, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible property, provisions of services, lending or borrowing money or any other transaction having a bearing on the profits, income, losses or assets of such enterprises.
It shall include a mutual agreement or arrangements between two or more AE’s for the allocation or apportionment of, or any contribution to, any cost or expense to be incurred in connection with a benefit, service or facility provided to any one or more such enterprises.
WHAT IS SPECIFIED DOMESTIC TRANSACTION (SDT)?
Specified Domestic Transaction means any of the following transactions, not being an international transaction namely:
- Any transaction referred u/s 80A;
- Any transfer of goods or services referred u/s 80-IA(2);
- Any business transacted between the assessee and other person as referred u/s 80-IA(10);
- Any transaction referred any other section under Chapter VI-A or section 10AA, to which provisions are applicable of u/s 80-IA(2) or 80-IA(10);
- Any other transactions as may be prescribed;
and where aggregate of such transactions entered into by the assessee in the P.Y exceeds INR 20 Cr.
TRANSFER PRICING DISCLOSURE OVERVIEW
As per Section 92E every person who has entered into an international transaction or SDT during a P.Y shall obtain a report from an accountant and furnish such report on or before 30th November of the relevant A.Y in the prescribed Form 3CEB duly signed and verified in the prescribed manner by such accountant.
The Income Tax Rules have been amended to require the filling of the said report electronically.
TRANSFER PRICING DOCUMENTATION
Transfer Pricing Documentation requirements provided under Section 92D of the Act and Rule 10D of the Rules.
- Ownership structure
- Profile of the multinational group
- Business description
- Nature and terms (including prices) of international transactions
- Description of functions performed, risks assumed and assets employed
- Record of any financial estimates
- Record of uncontrolled transaction with third parties and a comparability evaluation
- Description of methods considered
- Reasons for rejection of alternative methods
- Details of transfer pricing adjustments
- Any other information or data relating to the associated enterprise that may be relevant for determining the arm’s-length price
Mandatory annual documentation is to be maintained if aggregate value of all inter-company transactions during the relevant F.Y exceeds INR 1 Cr or Specified domestic transactions during the relevant F.Y exceeds INR 20 Cr.
TRANSFER PRICING METHODS TO COMPUTE ARM’S LENGTH PRICE (ALP)
- Comparable Uncontrolled Price Method (‘CUP’)
- Resale Price Method (“RPM’)
- Cost plus method (‘CPM’)
- Profit Split Method (‘PSM’)
- Transactional Net Margin Method (‘TNMM’)
TRANSFER PRICING PENALTIES
(a) failure to keep and maintain information and documents.
(b) failure to report such which is required to do so in Transfer Pricing Report or
(c) maintaining or furnishing any incorrect information or documents
|2% of the value of each international transaction or specified domestic transaction entered.|
|271BA||Penalty for failure to furnish report from the chartered accountant.||1 Lakh|
|271G||Penalty for failure to furnish information or document u/s 92D(3).||2% of the value of each international transaction or specified domestic transaction entered.|
HOW GKCM CAN HELP YOU
We have a team of specialist in accounting, taxation & law. This combination of specialist enables us to deal all the transfer pricing matters in technical & innovative manner. We provide the following services related to international transactions:
- Accounting services
- Advice on all the relevant matters
- Transfer pricing certificate
- Transfer pricing study
- Transfer documentation etc.