If you want your intercompany transactions to be certain and fruitful, fixing the transfer prices should be the first thing on your minds. To ensure that the static-ness of the transfer price persists, appropriate documentation is necessary. DSRV thus provides various facilities for Transfer Pricing.
“Transfer Pricing” generally refers to prices of transactions between associated enterprises which may take place under conditions differing from those taking place between independent enterprises. It refers to the value attached to transfers of goods, Services and technology between related entities located at different territories.
The finance Act, 1994 has introduced section 92A to 92F under the Income Tax Act, 1994 which is also known as “transfer pricing”. A separate code on transfer pricing under Sections 92 to 92F of the Indian Income Tax Act, 1961 (the Act) covers intra-group cross-border transactions which is applicable from 1 April 2001 and specified domestic transactions which is applicable from 1 April 2012.
Organisation for Economic Co-operation and Development (OECD) Guidelines and describe the various transfer pricing methods, impose extensive annual transfer pricing documentation requirements and contain harsh penal provisions for noncompliance.
The Indian Transfer Pricing Code prescribes that income arising from international transactions or specified domestic transactions between associated enterprises should be computed having regard to the arm’s-length price.
Until financial year (FY) 2011-12, transfer pricing regulations were not applicable to domestic transactions. However, the Finance Act, 2012 has extended the application of transfer pricing regulations to ‘specified domestic transactions’, being the following transactions with certain related domestic parties.
The relationship of associated enterprises (AEs) is defined by Section 92A of the Income Tax Act, 1961 to cover direct/ indirect participation in the management, Control or capital of an enterprise by another enterprise. It also covers situations in which the same person (directly or indirectly) participates in the management, Control or capital of both the enterprises.
Meaning of Arm Length Price: It means that the price a company pays to purchase goods or services from a related company entity should be the same as if the two entities were unrelated.
The term ‘arm’s-length price’ is defined by Section 92F of the Act to mean a price that is applied or is proposed to be applied to transactions between persons other than AEs in uncontrolled conditions. The following methods have been prescribed by Section 92C of the Act for the determination of the arm’s-length price:
No particular method has been accorded a greater or lesser priority. The most appropriate method for a particular transaction would need to be determined having regard to the nature of the transaction, Class of transaction or associated persons and functions performed by such persons as well as other relevant factors.
As per Section 92D of Income Tax Act 1961 and Rule 10D of Income Tax Rules Taxpayers are required to maintain, on an annual basis, a set of extensive information and documents relating to international transactions undertaken with AEs or specified domestic transactions. Rule 10D of the Income Tax Rules, 1962 prescribes detailed information and documentation that must be maintained by the taxpayer. Such requirements can broadly be divided into two parts.
The first part of the rule lists mandatory documents/ information that a taxpayer must maintain likewise, the second part of the rule requires that adequate documentation be maintained that substantiates the information/ analysis/ studies documented under the first part of the rule. The second part also contains a recommended list of such supporting documents, including government publications, reports, studies, technical publications/ market research studies undertaken by reputable institutions, price publications, relevant agreements, contracts, and correspondence.
Taxpayers having aggregate international transactions below the prescribed threshold of INR 10 million and specified domestic transactions below the threshold of INR 50 million are relieved from maintaining the prescribed documentation. However, even in these cases, it is imperative that the documentation maintained should be adequate to substantiate the arm’s-length price of the international transactions or specified domestic transactions.
All prescribed documents and information must be contemporaneously maintained (to the extent possible) and must be in place by the due date of the tax return filing. Companies to whom transfer pricing regulations are applicable are currently required to file their tax returns on or before 30 November following the close of the relevant tax year. The prescribed documents must be maintained for a period of nine years from the end of the relevant tax year and must be updated annually on an ongoing basis.
The documentation requirements are also applicable to foreign companies deriving income liable to Indian withholding tax.
As per Section 92E of Income Tax Act, 1961, It is mandatory for all taxpayers, without exception, to obtain an independent accountant’s report in respect of all international transactions between associated enterprises or specified domestic transactions. The report must be furnished by the due date of the tax return filing (i.e., on or before 30 November).
The burden of proving the arm’s-length nature of a transaction primarily lies with the taxpayer.
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.
As part of our transfer pricing service, we offer: –
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.
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.
We provide 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.