Transfer Pricing is one of the critical tax issues for growth oriented businesses having international operations wherein substantial senior management’s time and attention is necessary. Irrespective of their size, organizations need an effective and dependable Transfer Pricing policy, which takes into consideration the organization’s overall business strategy and operating structure.
In terms of provisions of Income Tax Act 1961, every assessee entering into International Transaction or Domestic transaction (wherein specified conditions are satisfied) will have to ensure that the transactions entered into by them are at arm's length price. To assist assesses as to what is arm's length? What they have to comply with? We qualified and experienced chartered accountants are assisting our clients by providing following services.
Our Transfer Pricing team with its rich experience and demonstrated capabilities offers comprehensive solutions in areas such as Transfer Pricing Documentation, Transfer Pricing assessments and other value added services.
In terms of provisions of Income Tax Act 1961, every assessee entering into International Transaction or Domestic transaction (wherein specified conditions are satisfied) will have to ensure that the transactions entered into by them are at arm's length price. To assist assessees as to what is arm's length? What they have to comply with? We qualified and experienced chartered accountants are assisting our clients by providing following services.
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.
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.
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.
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.
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%.
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.
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.
A transaction is said to be an International Transaction in following cases :
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.
The Finance Act 2012 has introduced the concept of Transfer Pricing for Domestic Transactions also.
Since there is direct participation by way of CH Limited controlling SN limited, both the companies are related.
Hence RM and DT are related through an intermediary.
If directors S & T play significant role in making decisions at HGC and QRT, then we can say companies are related.
Specified Domestic Transactions Include :
and where the aggregate of such transactions entered into by the assessee in the previous year exceeds 20 Crores.
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.
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.
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.
The above list is exhaustive and any documentation is with reference to rule 10D of Income Tax Act 1962.
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.
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.
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.
Methods used in computing arms length pricing are :
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.
Penalty, a sum equal to 2% of the value of each Specified Domestic Transaction as entered by assessee.
Penalty of one hundred thousand rupees will be levied.