Transfer Pricing Regulations

TP regulations : Global

OECD make “Transfer Pricing Guidelines”. TP Guidelines provide as commonly accepted practices by the tax establishments

TP regulations : India

• The Finance Act 2001 present the complete TPR w.e.f. 1st April 2001
• The Income Tax Act
• AS-18
• Other related Acts

Accounting Standard 18 : Need revelation of ‘any elements of the related party transactions essential for an considerate of the financial statements’.

Related Parties :

• Control by ownership : 50% of the voting right
• Control over composition of board of directors : Power to appoint or remove the directors
• Control of substantial interest : 20% or more interest in the voting power

AS-18 and Transactions:

• Purchase and sale of goods;
• Rendering or receiving services;
• Agency arrangements;
• Leasing arrangements;
• Transfer of research and development;
• License agreements;
• Finance
• Guarantees and collaterals;
• Management contracts.

Income Tax Act and Transfer Pricing:

• Finance Act 2001 substituted the old section of 92 of the ITA by sections 92, 92A to 92 F.
• These sections are the backbone of Indian Transfer Pricing Regulations.
• These sections describe the sense of connected parties, global transactions, pricing methodologies etc.

TPR: Some Important Concepts

• Income/Expenses/Cost arising from an international transaction shall be computed having regarded to arm’s length price (ALP).
• ALP provisions can be applied if it leads to decrease in taxable income or increase in losses.

Associate Enterprise: 92A

• Direct Control/Control through intermediary
• Holding 26% of voting power
• Advance of not less than 51% of the total assets of borrowing company.
• Guarantees not less than 10% on behalf of borrower
• Appointment of more than 50% of the BoD
• Dependence for 90% or more of the total raw material or other consumables

International Transactions: 92B

• Transaction between two or more AE of which either both or anyone is a non-resident.
• Transactions:
  • – Purchase/Sale/Lease
  • – Provision of service
  • – Lending or borrowing