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transfer pricing study report
Profitability Starts with Precise Pricing!

A Quick Dive Into Transfer Pricing Study Report!

Since 1991, India has increased its trade with the rest of the world. As more international firms seek to do business in India, tax officials enacted Transfer Pricing Regulations. According to these guidelines, when a corporation generates money from transactions with foreign countries, it must figure out a fair price for it. Various methods are used to calculate this fair pricing. The goal is for everyone to pay their fair share of taxes. These rules help determine how businesses should set prices while performing cross-border business, ensuring that things are fair and taxes are paid correctly in India.

What Is TP Documentation?

A transfer pricing study is a thorough examination of the costs associated with transactions between linked businesses in several nations. The purpose of the transfer pricing case study is to make sure that the prices levied are just, reasonable, and follow market rates. The study helps businesses avoid potential transfer pricing disagreements with tax authorities, which can be expensive and time-consuming.

A corporation needs to acquire a lot of data and information about the relevant transactions to undertake a tp study. This data is used to identify comparable transactions in the market and determine the arm's length price for the transactions. Additionally, the study evaluates the unique circumstances of each transaction, as well as factors like the market conditions at the time of the transaction, the industry, the size and complexity of the transaction, and the specific circumstances of each transaction.

What Is The Objective Behind TP Study?

The key objectives behind transfer pricing in taxation are as follows-

  • To ensure that the profits made by an MNE's affiliates in several nations represent the economic contributions made by each firm and that the pricing of intercompany transactions is consistent with what independent parties would have agreed upon under similar circumstances.
  • To avoid double taxation and disagreements with tax authorities by abiding by local tax rules and regulations in each nation where an MNE conducts business.
  • To reduce tax obligations as much as possible and increase tax efficiency while also making sure that tp documentation rules are followed and that ethical standards are upheld to reduce the overall tax burden of the multinational enterprise.
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How Can TP Study Benefit Your Business In India?

Gain a competitive advantage and financial benefits by conducting a Transfer Pricing Study tailored to your foreign activities. Let’s explore the benefits of TP documentation for your business -

Legal Compliance

By conducting a TP study, your business ensures compliance with the Transfer Pricing Regulations in India. This reduces the risk of legal challenges and penalties related to incorrect pricing in international transactions.

Risk Mitigation

The transfer pricing policy document helps in identifying and managing transfer pricing issues. This is important for reducing the likelihood of audits or conflicts with tax authorities, resulting in a more efficient operation for your company.

Optimized Tax Structure

A well-conducted TP analysis enables your company to design a tax-efficient structure, ensuring that you are not overpaying or underpaying taxes. This optimization might help your firm save money.

Transparent Financial Reporting

Transfer pricing report keeps track of your foreign transactions in a transparent manner. This transparency is essential not only for compliance, but also for building trust with stakeholders like investors, partners, and regulatory bodies.

Informed Decision-Making

The findings of TP research can help with strategic decision-making. Understanding the transfer pricing arm's length principle allows your company to make informed decisions in foreign transactions, contributing to the overall success of operations in India.

Global Reputation

Adhering to international transfer pricing regulations improves your company's global reputation. It demonstrates a dedication to fair and ethical company practices, which may attract more partners and customers.

What Is Arm's Length Price?
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What Is Arm's Length Price?

The "arm's length price" is the fair cost when unconnected people trade products or services. It is a transfer pricing guideline that ensures fairness in transactions between related parties (such as parent and subsidiary). The arm's length principle (ALP) serves as a guideline, ensuring that related party transactions follow market values. To avoid unlawful profit transfers, tax authorities may change prices outside the ALP range. Arm's length is essential in India for preventing tax evasion and taxation earnings where they are made, which is a critical part of transfer pricing regulations.

Rules & Regulations Of Transfer Pricing Study Report

Here is a brief description of rules and regulation set for tp study -

  • Section 92 Of Income Tax Act Transfer Pricing

    Anyone who has been involved in an international transaction or a certain type of domestic transaction is required to keep and maintain the information and documents related to such transactions as may be outlined in Rule 10D. If the person is part of an international group, he/she must keep and maintain information and documents as required by transfer pricing law.

  • OECD Transfer Pricing Guidelines 

    The above explanation and steps closely adhere to the global guidance provided in Chapter 5 of the OECD transfer pricing guidelines. Additionally, it offers advice to help taxpayers pick the supporting paperwork that will be most useful in demonstrating that their transactions comply with the arm's length principle, thereby addressing transfer pricing difficulties and facilitating tax investigations.

TP documentation flow 

Executive Summary 

  • The goal of this tp pricing study is to prove that the assessee's specific domestic transactions and overseas transactions were both conducted at arm's length.
  • The document's flow must be clear and concise, and it should include all of the key observations and conclusions.
  • The following information should be presented clearly and concisely: 
  • The findings of the economic analysis, the business of the group and the taxpayer indicate the relationship between the group and the taxpayer.
  • The activity performed or services rendered
  • The characterization of the entities involved, 
  • A list of all international transactions (with value and the methodology used), 
  • A conclusion
  • The results must also be relevant to that financial year and may need to be updated based on the most recent financial results, changes to the FAR profile, or the amount of tangible and intangible assets owned.

Corporate/ Group Overview 

  • This part gives a general overview of the organizational and legal framework of the Company, its Group, and its Group Companies.
  • The overview must include a brief background (date of incorporation, employee base, global presence, etc.), the operational/shareholding structure (preferably in a flow chart), a brief explanation of the business segments, activities carried out/services provided under each segment, and the product profile.
  • An evaluation of the financial performance of the company, including its revenues, expenses, and profits, as well as the effect of transfer pricing on those results, should be made in the overview.
  • The agreement with the group firm should be also mentioned in the company overview.

Industry Background 

  • The overview should include information on the size, growth rate, and competitive environment of the major market in which the multinational company competes.
  • The overview should highlight the industry's current trends and problems, including any technology advancements, legislative changes, or shifts in consumer preferences.
  • The overview should list the key players in the market, such as suppliers, customers, and rivals.
  • The review should list any sector-specific risks that could have an impact on the related party transactions and transfer pricing policies of the multinational company.
  • The current state of the industry, including its margins, rate of growth, level of sector development, SWOT analysis, etc.

Transfer pricing regulations & their applicability 

The overview should list all applicable local and international tax transfer pricing and regulations, including the OECD tp guidelines that apply to the multinational company..

  • International Transfer Pricing

Determine an international transaction under Section 92B using the information on Form 3CEB.

The section needs to list the determined foreign transactions, both in terms of AEs and value.

  • Associated Enterprises Transfer Pricing

Using the financials' related party declaration, calculate AE under section 92A.

Describe the nature of the partnership between the assessee and the AE.

Provide a short description of AE.

FAR Analysis 

  • The overview should explain the duties carried out by each linked party participating in the transaction, as well as the tasks accomplished, the amount of expertise and ability needed, and how each party contributed to the value-creation process.
  • The overview should list all of the assets used by each related party involved in the transaction, including both tangible and intangible assets, real estate, machinery, and equipment, as well as intellectual property.
  • Based on the analysis of functions, assets, and risks, the overview should describe the methodology used to allocate profits between related parties involved in the transaction.
  • The overview should specify any comparable data or benchmarks, such as information on comparable transactions carried out by unrelated parties in the same or related industries that were used to support the transfer price study.

Economic Analysis 

  • To calculate the arm's-length pricing, it is necessary to look for comparable businesses and data sets.
  • The companies were chosen as the comparables are briefly described along with the industry.
  • It is necessary to calculate the proper arm's length pricing as well as the profit level indicator suitable for the transaction.
  • If the transfer price is beyond the arm's length price range, adjustments must be made. If necessary, the range concept is also used in accordance with the prescribed rules.
Profit Paths Illuminated!

How Does Our Transfer Pricing Study Report Address Issues?

1. Our research guarantees that your foreign transactions are priced correctly, avoiding tax conflicts.

2. We help your company in complying with transfer pricing documentation requirements, ensuring that you stay on the right side of the law and avoid penalties.

3. Our study reduces the likelihood of audits or legal difficulties linked to transfer pricing by detecting and controlling potential risks.

4. We work with you to create tax-efficient structures that increase cost savings for your company.

5. Our research gives comprehensive evidence of business transactions, creating transparency and confidence among stakeholders.

6. Our research findings enable your company to make more informed decisions, which contributes to overall success and sustainability.

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What Are Different Transfer Pricing Methods?

Transfer pricing methods are procedures used to estimate the fair arm's length price for transactions between related parties, often in separate countries. Here are some common transfer pricing methods India-

Comparable Uncontrolled Price Method ( CUP Method) 

Under this method, the price of the controlled transaction is compared to the price of a comparable transaction between independent parties.

Resale Price Method 

This method involves calculating the arm's length price by deducting an acceptable gross margin from the resale price of goods or services.

Cost Plus Method 

As per this process, the arm's length price is calculated by adding a mark-up to the costs of manufacturing goods or providing services.

Profit Split Method 

It allocates the combined profits of the associated firms based on an examination of their contributions to value creation.

Transaction Net Margin Method

It compares the net profit margin of the related party to that of comparable independent parties.

Comparable Profit Method

Compares the operating profit margin earned by the tested party to the margins of comparable independent parties.

transfer pricing study report
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What DSRV Role related to Transfer Pricing

We, DSRV and Co LLP Chartered Accountants, are providing  Transfer Pricing Planning, Compliance with Transfer Pricing Taxation Rules, Transfer Pricing Study Report etc. services to our clients for the last 20 years. Very recently, there is a lot of amendments in Transfer Pricing and compliance of withholding tax provision as per Section-92 to Section 92F of the Income Tax Act and more than 90 tax treaties which India is presently having with tax jurisdictions.

What Are The Transfer Pricing Documentation Requirements In India?

The Master File:

A detailed report that provides an overview of worldwide corporate operations, including organizational structure, business activities, and intangible assets.

Local File:

Detailed information about the Indian entity, including related-party transactions, financials, and the use of selected transfer pricing methods.

Country-by-Country Report (CbCR):

Applicable to multinational firms that meet certain criteria and provide a breakdown of worldwide income allocation, taxes paid, and certain measures of economic activity.

Report of the Accountant:

A certificate from an accountant confirming compliance with the transfer pricing regulations.

Form 3CEB:

A chartered accountant's report certifying compliance with tp requirements filed as part of the annual tax return.

Where Expertise Meets Excellence in Pricing!

Transfer Pricing Service We Offer

Optimize your company's earnings with our experienced Transfer Pricing services, which provide fair and smart financial plans for global success.

Transfer Pricing Planning

We help our clients by studying the concerned industry, invoice methods, transaction, pricing and adoption of the correct methods. We develop transfer pricing solutions and strategies that respond to the associate’s enterprise objectives and national tax authority requirements through proper tax planning.

Compliance With Transfer Pricing Taxation Rules

We help our clients on dealing with transfer pricing officer and provide assistance for compliance with transfer pricing rules and regulations. We provide dependable solutions that help companies to fulfil authority’s requirements and to maintain with arm’s lengths standards.

Transfer Pricing Study Report

We provide a transfer pricing study report based on the information/ documents given by the clients. We further provide suitable tax advice and consulting on fixation of the Arm’s length price and selection of the most appropriate methods.

Expert Guidance!

Frequently Asked Questions – 

Get quick answers to common queries with our FAQs, your go-to resource for clarity and understanding.

What is a transfer pricing study report?

Analysis and record of pricing agreements between connected parties in a global organization are contained in a transfer pricing research report. It tries to ensure that the transfer prices used for transactions between these linked parties are at arm's length, or comparable to prices used in similar transactions between unrelated parties.

Who prepares a transfer pricing study report?

A team of experts, comprising tax experts, accountants, and economists with expertise in transfer pricing creates a report on a transfer pricing study.

Why is a transfer pricing study report important?

An important function of a transfer pricing research report is to help multinational firms comply with tax laws and avoid penalties for non-compliance. Additionally, it makes sure that tax obligations are distributed properly and that earnings are divided equally among linked parties.

What are the key components of a transfer pricing study report?

The key components of a transfer pricing study report include an analysis of the industry, a description of the controlled transaction, an identification of comparable transactions, a selection of the most appropriate transfer pricing method, and an explanation of the results.

How is the arm's length principle applied in a transfer pricing study report?

To apply the arm's length principle, a transfer pricing study report compares the prices used in controlled transactions with prices used in comparable transactions between unrelated parties. If the prices used in controlled transactions are not at arm's length, adjustments may be made to ensure compliance with tax regulations.

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