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Role of Taxpayer and Auditor in Transfer Pricing Report in Form 3CEB

A: Introduction

 

Role of taxpayer and Auditor in Transfer Pricing Report in Form 3CEB –    We the advent of technology, transparency and effectiveness not only Transfer pricing documentation but also auditors report in Form 3CEB is becomes extremely relevant in India. Faceless interactions with tax authorities and rise of transfer pricing skills of tax authorities will play vital role in transfer pricing assessment and litigation in times to come. Role of the auditor in reporting transactions covered under transfer pricing has assumed high important as never before. 

B: Legal Framework  

 

Section-92E of Income Tax Act requires that every person who has entered into an ‘international transaction’ or ‘specified domestic transaction’ during the previous year shall obtain a report from accountant and furnish such report in Form-3CEB and in the prescribed manner on or before the specified date which is one month prior to the due date for furnishing the return of income under section 139(1) for the relevant assessment year.

 

Rule-10E of Income tax rules provides that “the report from an accountant required to be furnished by every person who has entered into an international transaction or specified domestic transaction during the previous year shall be in Form-3CEB and verified in the manner indicated therein.

 

There is no monetary threshold specified for reporting of international transactions and hence taxpayer need to furnish Form 3CEB when there is an international transaction, even for single rupee. However, monetary threshold of INR 20 crores has been provided for specified domestic transactions for applicability of Form 3CEB.

 

Penalty Provisions:

  • Penalties on Enterprise

Section-271AA: 2% of the value of ‘international transaction’ or ‘specified domestic transaction’  for not-reporting and erroneously reporting such transactions.

Section-271BA: INR 100,000 for not furnishing Form 3CEB by due date.

Section-270A: Additionally, a penalty equal to 200% of amount of tax payable on the transactions not reported.

  • Penalty on Chartered Accountant

Section-271J: INR 10,000 for furnishing incorrect information in Form 3CEB.

 

 C: Meaning and Significance of clauses of Annexure to Form-3CEB 

 

It contains 25 clauses divided in 3 parts which are as follows:

Part A: Particulars of taxpayer (Clause-1 to Clause-9)

Part B: Particulars of Associated Enterprises with whom taxpayer has entered into international transactions during the year and the details of international transactions (Clause-10 to Clause-20) and

Part C: Particulars of Associated Enterprises with whom the taxpayer has entered into specified domestic transactions during the year and details of specified domestic transactions (Clause-21 to Clause-25)

 

Every clause of this Annexure is in itself self-explanatory; however, it requires the taxpayer to disclose comprehensive information about the Associated enterprises and international transactions/specified domestic transactions as per the provisions of the Act and Rules which is in self a complicated exercise in view of facts that complicated structures and categories of transactions covered through various arrangements, agreements or contracts whether written or oral. Auditor need to verify the particulars provided by taxpayer based on his examination of accounts, records and additional information and documents along with Written representation from management on the matters not directly covered and his test check. Detailed Transfer pricing study and documentation of the taxpayer business is pre-requisite for auditor’s verification.

 

D: Taxpayer’s Responsibility 

 

  1. I) Taxpayer is responsible to prepare and provide complete information and documentation to the auditor which is required to verify the particulars of international transactions and specified domestic transactions as mentioned in Form-3CEB.
  2. II) The taxpayer is responsible for preparation of Form 3CEB, verified it from the accountant and submit it with tax authorities.

III) Taxpayer is also responsible for not providing or wrongly providing such information with severe penalty provisions.

E: Auditor’s Responsibilities  

 

I) Auditor is responsible to verify the details of international transaction or specified domestic transaction entered into by taxpayer during the previous year based on examination of accounts and records and additional information and documents to be provided by the taxpayer.

II) Auditor is not responsible to express any opinion on the financial statements of the taxpayer as Section-92E of ITA only mandate the auditor to verify the particulars of Form 3CEB prepared by taxpayer.

III) Auditor should document all matters which are important in providing evidence that the examination was planned and performed in accordance with applicable legal and regulatory requirements.

IV) Auditor is responsible to express his opinion on two aspects; one, that proper information and documents as are prescribed have been kept by the taxpayer in respect of international transaction (s) and specified domestic transactions entered into by taxpayer during the previous year and two, that the particulars given in Annexure to Form 3CEB are true and correct.

V) Auditor should maintain such working papers which are necessary as proof for issuing Report in Form 3CEB while verifying particulars as true and correct provided by the taxpayer in an annexure to Form 3CEB such as; list of record and document examined by him, information and explanation provided during the course of examination, decision taken and its basis, relied upon case laws etc.

VI) Auditor should follow Standard of Auditing (SAs) and guidance note issued by ICAI and give his observation or/and qualifications in his report with clear facts in case of non-compliance by taxpayer under the provisions of the Income Tax Act.

G: Concluding Remarks  

 

High Expectations from auditors should be taken positively and smart work is the needs of the hour to discharge responsibility by using latest technological tools and adhering robust documentation. At the same time, transparent discussion with taxpayer with regard to taxpayer’s liabilities in the shape of enormous penal consequences will definitely help auditors to discharge his responsibilities judiciously.

 

(Disclaimer: This content is meant for our clients or professional friends only for stimulating discussion on the subject matter not to frame any commercial opinion. All efforts are made to compile correctly with no guarantee of extreme accuracy)

Please feel free to write on sanjay@dsrvindia.com or contact at: +91 9810116321

 

#casanjay #internationaltax @incometax #form3ceb #OECD #MLI #BEPS #transferpricing

 

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