Transfer Pricing
Transfer pricing has gained attention from tax authorities across the globe in recent years. As a result, there is now a complicated regulatory environment for transfer pricing with a wide range of rules and regulations in many countries.

The process of determining the price for goods and services that are exchanged between several entities is known as transfer pricing. Organisations need international transfer pricing services to make sure their clients' businesses abide by transfer pricing laws. The services can also help with the subsidiary of the foreign company.

Transfer Pricing Methodologies
- Comparable Uncontrolled Price (CUP) Method:
- Cost Plus Method:
- Resale Price Method:
- Transactional Net Margin Method (TNMM):
The CUP method is employed to contrast the prices charged for comparable items or services in regulated and uncontrolled transactions.
To calculate the transfer pricing in international business using the cost plus method, the cost of the goods and services is increased by a specific profit margin.
The Resale Price Method involves marking up the resale price of the good or service to calculate the transfer price.
TNMM can be used to compare the net profit margin earned by a related entity in a controlled transaction with the net profit margin earned by comparable independent entities in similar transactions.
Transfer Pricing Documentation
- Master File
- Local File
- Country-by-Country Report:
- Transfer Pricing Study:
The Master File gives a general picture of the group's international business operations, including its organisational structure, intangible assets, financing actions, and transfer pricing rules.
A local subsidiary's intercompany transactions are thoroughly described in the Local File. It contains details about the type and extent of the transactions, the transfer pricing methodology employed, etc.
The Country-by-Country Report offers a high-level overview of the income, taxes, and economic activity of a multinational group on a global scale.
The Transfer Pricing Study is a thorough examination of a multinational group's transfer pricing practices and cross-company dealings.
Transfer Pricing Compliance
- Determination of Arm's Length Price:
- Preparation of Transfer Pricing Documentation:
- Filing of Transfer Pricing Documentation:
- Representation before Tax Authorities:
To determine whether a transaction between related businesses was priced at an arm's length price, it is necessary to examine the pricing of that transaction.
To comply with transfer pricing requirements, businesses must put together proof that their dealings with connected entities are independent of one another.
Businesses are required to submit their transfer pricing documentation to tax authorities in several nations. It's possible to do this yearly or as part of a tax audit.
It can be required to represent a corporation before tax authorities if a tax audit shows problems with its transfer pricing.
Transfer Pricing Dispute Resolution
- Advance Pricing Agreement (APA):
- Mutual Agreement Procedure (MAP):
- Transfer Pricing Litigation:
An APA is a formal agreement that specifies the correct transfer pricing technique to be used with respect to a specific set of transactions. It is made between a taxpayer and one or more tax authorities.
In tax treaties between nations, the MAP is a procedure for resolving disputes. The MAP allows taxpayers to ask that negotiations be held between the tax authorities of the nations concerned in a transfer pricing issue.
On occasion, APAs or the MAP are unable to resolve transfer pricing disputes, necessitating litigation. Taxpayers who are involved in transfer pricing litigation can challenge the tax authority's determination of the transfer price in a court or tribunal.
Our Best Practices In Implementing Transfer Pricing Services
- Transfer Pricing Analysis:
- Transfer Pricing Planning:
- Transfer Pricing Documentation:
- Transfer Pricing Dispute Resolution:
- Transfer Pricing Training and Support:
The domestic transfer pricing service involves analysing the intercompany transactions between related entities and determining the arm's length price for those transactions in accordance with applicable transfer pricing regulations.
Transfer Pricing Planning is all about developing and implementing a transfer pricing strategy that aligns with the company's overall business objectives and minimises the risk of transfer pricing disputes.
The process of transfer pricing in taxation involves preparing contemporaneous transfer pricing documentation in accordance with applicable regulations. The documentation should include a detailed description of the intercompany transactions.
Transfer Pricing Dispute Resolution helps in assisting companies in resolving transfer pricing disputes with tax authorities. Financial accounting advisory services also include representing the company in negotiations with tax authorities and much more.
A lot of companies provide training to companies on transfer pricing regulations and best practices. This may include seminars, webinars, and on-site training sessions.
Why Choose BC Shetty & Co For Transfer Pricing Services
When it comes to transfer pricing services, BC Shetty & Co is undoubtedly one of the top names. The company has been offering impeccable services to the customers for quite a while now. Our chartered accountants are highly experienced at what they do and they will offer you the best services as per your requirements. You can also contact us for online company registration in india.
In this way, transfer pricing services assist companies in determining fair and reasonable prices for these transactions to ensure compliance with tax laws and regulations. Proper transfer pricing compliance is crucial for multinational companies to avoid potential tax penalties and reputational damage. However, this entire process can get complicated which is why you should take the help of a professional for your job.
Cross Border TP:
FAQ
Chapter X of Income Tax Act 1961 states that any transaction entered with associated enterprise has to be within arm's length. The price at which the transaction is transacted with related parties should be the same price at which it will be transacted with unrelated parties. We assist our clients in analysing the facts, studying the price risk and advising them the price at which the transaction should take place.
Am i required to comply with transfer pricing?
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XYZ Private Limited Company, an Indian Company is into the business of Software
Development. It renders services to its holding company ABC Private Limited
located at Perth. Will the company be assessed for Transfer Pricing?
As there is direct participation in the form of investment in capital by ABC Private Limited, we can say that ABC private limited and XYZ Private Limited are associated. Accordingly Transfer Pricing is applicable.
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Aero Limited, situated in Bangalore is into the business of manufacturing
aeronautical parts. It purchases raw materials from Zebra Limited Located in
Sydney, Zebra Limited has stake of 15% in Aero Limited, Hira Limited has 55%
stake in Zebra Limited. Will Hira Limited and Aero Limited be called as
Associated enterprises?
Hira Limited and Zebra Limited have direct participation. Zebra Limited and Aero Limited have Direct participation, but Hira Limited and Aero Limited have indirect participation by Hira Limited controlling Zebra Directly.
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In the case of example a.) What if no transactions have taken place between the
companies ?
Just because a company is associated will not give rise to Transfer pricing Compliance. Once they are associated, to analyse the transfer pricing risk, existence of a trasaction as specified in the act is necessary.
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JIM limited is located in India dealing with Aluminium products, has advanced
loan of certain sum of money to JACK Limited located in Singapore. The loan
advanced is 55% of the book value of total assets of JACK Limited. Are the
enterprises said to be associated ?
Two enterprises shall be deemed to be associated enterprises if, at any time during the previous year, a loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise. In the above case JIM and JACK Limited are Associated as JIM has advanced 55% of the book value of total assets of JACK limited, which is more than 51%.
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What if the loan is guaranteed by A Ltd to B Ltd, will it be an associated
enterprise?
Two enterprises shall be deemed to be associated enterprises if, at any time during the previous year, one enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise. A LTD and B LTD are not associated enterprise as borrowings guaranteed by A LTD is less than 10%. As per provisions it should be not less than 10% to satisfy the criteria of associated enterprise.
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DARE Limited and DASH Limited have 4 directors on board. The process of
appointing directors vests with DASH Limited located in Sweden, whereas DARE
Limited is in India. Are the enterprises said to be associated with each other?
Yes. As per the provisions where more than half of the directors or members of the governing board are appointed by other enterprise, it is said to be associated enterprise.
AU Limited located in Bengaluru has entered into the transactions of borrowing a certain sum of money from its Subsidiary AG Limited located at Napier. Will this transaction be an International transaction?
A transaction is said to be an International Transaction in following cases :
- Transaction in the form of lending or borrowing of money.
- Transaction in the form of Purchases or Sales of goods or services.
- Transaction in the form of dealing with Tangible/Intangible Property.
- Transaction of business restructuring.
- Any other as defined in section 92B of the Income Tax Act 1961.
What is Transfer Pricing Study?
What are the documents required to be maintained by a company while executing an International Transaction?
- Details of ownership structure of the company.
- Detailed profile of Foreign group or Domestic group(if SDT is applicable) to which the assessed company is associated with International or SDT as the case may be. (name, address, country/State )
- Detailed description of business activities of both the contracted parties.
- Details of International Transactions or SDT as the case may be. (Nature of transaction, value of transaction , terms contained in transaction.)
- Details of functions carried out, details of risks associated, details of tangibles and intangible assets.
- Details of uncontrolled transactions.
- Details of market analysis.
- Details of the transfer pricing method used and reasons for selecting the same over other.
Who is authorised person in India to Furnish the report under Section 92E of the Transfer Pricing Regulation in India?
What is the role of an Accountant?
What is the validity of Safe harbour rules?
- What compliances are to be followed by an assessee following Safe Harbor Rules ?
- Transaction entered with an AE is an eligible international transaction;
- Quantum of the international transaction;
- Whether the AEs country or territory is a no tax or low tax country or territory; and
- Operating profit margin/transfer price.
- ENFIS Company located in Rohtak provides back end software operations to Mutual Fund company ENVY of US. Such transactions with associated enterprise has given rise to International Transaction amounting 650 crores. The company ENFIS states that the concept of Transfer Pricing Risk does not exist as it expects the pricing followed by it to be accepted as it has maintained 20% margin . Clarify it.
File Form 3CEFA .
The Finance Act 2009 introduced SAFE HARBOUR Rules. It means the circumstances when the pricing fixed by assessee will be accepted by assessing officer. It was amended in 2013 with a specific rule which provides Minimum operating profit margin in relation to operating expenses that which will be accepted by assessing officer.
Safe harbour rules are not arm's length price but contains the conditions and circumstances under which these norms are applicable.
What are the methods used in computing arms length price?
- Comparable Uncontrolled Price method (CUP method)
- Resale Price Method (RPM)
- Cost Plus Method (CPM) Guidance Note – Transfer Pricing
- Profit Split Method (PSM)
- Transactional Net Margin Method (TNMM)
- Other Prescribed by the board and provided in rule 10AB.
What is transfer pricing documentation?
Raj Limited has failed to furnish report under section 92E, What is the impact?
Domestic Transfer Pricing:
The Finance Act 2012 has introduced the concept of Transfer Pricing for Domestic Transactions also.
FAQ
Will my Business be assessed for Transfer Pricing?
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CH Limited is into the business of Infrastructure located in Bengaluru, the
company is subsidiary of SN Limited located in Pune. Are the companies related?
Since there is direct participation by way of CH Limited controlling SN limited, both the companies are related.
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DT Limited is into the business of dealing with Motor Vehicles, the company is
procuring goods from HL Limited .HL Limited has 12% stake in DT Limited. HL
Limited has invested 53% in capital of RM Limited. Are RM and DT related?
- RM limited and HL Limited are related directly.
- HL Limited has 12% stake in DT Limited.
- Since RM holds HL by way of 53% stake and HL holds 12% in DT, we can say that RM is indirectly controlling DT through intermediary HL Limited.
Hence RM and DT are related through an intermediary.
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HGC, located in Mysuru is into the business of rendering back end accounting
services to QRT located in Bengaluru. Both the companies have four directors of
which two directors S & T work as directors in both companies. Are the company
related?
- Companies having common directors will not immediately make them related.
- To be related both directors decisions should have its influence on the company.
If directors S & T play significant role in making decisions at HGC and QRT, then we can say companies are related.
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What if the above companies are related?
- Check the transactions entered into by the company.
- Check the transaction limit to know whether the transaction is a Specified Domestic Transaction.
What do you mean by Specified Domestic Transaction ?
Specified Domestic Transactions Include :
- Any expenditure incurred of which payment is made to parties referred to in section 40(a)(2)(b).
- Any transaction referred to in section 80A.
- Any transfer of goods or services referred to in section 80IA(8).
- Any business transacted between the assessee and other person referred to in 80IA(10).
- Any transaction referred to in any other section under chapter VI-A or section 10AA.
- Any other transaction as may be prescribed.
and where the aggregate of such transactions entered into by the assessee in the previous year exceeds 20 Crores.
In the case of Domestic Transfer Pricing, will the provisions of Transfer Pricing Applicable for both related companies ?
- Domestic transfer pricing is assessed only from expenditure point of view.
- Domestic transfer pricing is not applicable to the company for whom the transaction is generating Income..
- Domestic transfer pricing is one way applicable to the company for whom it is an expenditure.
Aeroplane Limited is involved in manufacturing Aeronautic parts at Bengaluru , It is purchasing the raw materials from Accessories Limited located at Mumbai. Aeroplane Limited and Accessories Limited wants to know will TP be applicable for the said transaction if the limit has exceeded 20 Crores.
- The threshold limit of 20crores is to be assessed from the point of view of the one who is incurring expenditure.
- This provision operates only on expenditure side.
- Persons/ Entities Receiving income will not be subject to SDT under the provisions and would not be required to comply with the relevant transfer pricing regulations.
In the given example , for Aeroplane Limited buying of raw materials is an expense. For Accessories limited it is a revenue. Transaction of buying falls under Specified Domestic Transaction, the limit of 20 crores is also exceeded. The provisions operates only on expenditure side and hence TP regulations are to be complied by Aeroplane Limited Only. As for helicopter limited the transaction results in flow of income.
What is Transfer Pricing Study?
Transfer pricing study is all about examining the Industry overview (like competitors, pricing which is done by similar participants in Industry), it is also about analysing Functional, Risk and Asset analysis. Then deciding which method is suitable and giving reasons as to why such method was selected over other methods.
What are the documents required to be maintained by a company while executing an International Transaction/SDT ?
- Details of ownership structure of the company.
- Detailed profile of Foreign group or Domestic group(if SDT is applicable) to which the assessed company is associated with International or SDT as the case may be. (name, address, country/State )
- Detailed description of business activities of both the contracted parties.
- Details of International Transactions or SDT as the case may be. (Nature of transaction, value of transaction , terms contained in transaction.)
- Details of functions carried out, details of risks associated, details of tangibles and intangible assets.
- Details of uncontrolled transactions.
- Details of market analysis.
- Details of the transfer pricing method used and reasons for selecting the same over other.
The above list is exhaustive and any documentation is with reference to rule 10D of Income Tax Act 1962.
Who is authorised person in India to Furnish the report under Section 92E of the Transfer Pricing Regulation in India ?
Any Person who has involved in Specified Domestic Transfer Pricing will have to furnish the report under section 92E within November 30th of every assessment year.
What is the role of an Accountant ?
Accountant means Chartered Accountant. Every Chartered Accountant has to examine the information and documentation maintained and express an opinion in Form 3CEB as to the compliance of the legal requirements. A CA also examines the truth and correctness of the report.
BRAVE Limited located in Chennai is engaged in the business of selling Motor Vehicles to NEED Limited located in Bengaluru. During the year transactions of the NEED Limited has exceeded 20 Crores. It wants to know as to for how many years once TP study report has to be prepared ?
As and when the limit of SDT exceeds , NEED Limited has to get TP study completed . If market conditions and risks assessed show less deviation then recent past report say conducted two-three years ago can be relied and in such case a fresh study is not required but compliance is a must under section 92E that is submitting report from an accountant.
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Bijli Limited located at Haryana is into the business of providing power to
Howrah limited at Kolkata. It wants to know the methods used in computing arms
length price.
Methods used in computing arms length pricing are :
- Comparable Uncontrolled Price method (CUP method)
- Resale Price Method (RPM)
- Cost Plus Method (CPM) Guidance Note – Transfer Pricing
- Profit Split Method (PSM)
- Transactional Net Margin Method (TNMM)
- Other Prescribed by the board and provided in rule 10AB.
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What is transfer pricing documentation?
Preparing transfer pricing study in accordance with rule 10D of Income Tax rules 1962 and section 92D of Income Tax Act 1961, which specifies the manner in which documentation for TP study has to be made.
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SL Constructions Limited located in Bengaluru and transacting with UT
constructions located in Hyderabad has not maintained documents required to be
kept for International or Specified Domestic Transaction .What are the
consequences?
Penalty, a sum equal to 2% of the value of each Specified Domestic Transaction as entered by assessee.
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Ronak Limited has failed to furnish report under section 92E, What is the impact
?
Penalty of one hundred thousand rupees will be levied.
FAQ
What is transfer pricing for IT services?
The practice of defining the price at which goods or services are transferred between different entities within the same organisation is known as "transfer pricing" for IT services.
What are the three types of transfer pricing?
Cost-based transfer pricing, market-based transfer pricing, and negotiated transfer pricing are the three different types of transfer pricing.
Which transfer pricing method is the best?
There isn't a single "optimal" transfer pricing strategy because the ideal strategy will vary depending on the particulars of each transfer pricing transaction.
What are the three objectives of transfer pricing?
The three goals of transfer pricing are to minimise tax liabilities, divide revenues fairly among various entities within the same organisation, and adhere to applicable regulations.