TRANSFER PRICING - 12
We are proud to offer credible Transfer Pricing Services, which offer effective solutions to companies that undertake international transactions or specified domestic transactions with its associated enterprise(s) / group companies. We also provide credible consultancy, documentation, compliances and allied Transfer Pricing Services.
What is Transfer Pricing?
Transfer pricing refers to the setting of the price for goods & services that are sold within an enterprise that too between controlled legal entities. For instance, if the goods are sold to a parent company by a subsidiary company, the cost of that the parent company pays to the subsidiary is termed as the ‘transfer price’
The Transfer Pricing Laws as mentioned u/s 92 to 92F of the Income Tax Act 1961 covers cross-border intra-group transactions. For tax purposes, companies need to follow the arms-length principle to record the exchange of goods, which implies that the prices that the affiliated companies charges should be equivalent to the prices charged by a third-party. The prescribed methods under this Act are given below:
- Comparable uncontrolled price method
- Profit split method
- Resale price method
- Cost-plus method
- Transactional net margin method
However, other methods can be used that take into account the price that has been charged for the same transaction under similar circumstances, with or between non-associated enterprises, taking into consideration all the relevant facts.
Things You Need to Know
- Till FY 2011-12, the transfer pricing regulations did not apply to domestic transactions. It has been extended to domestic transactions as per the Finance Act, 2012, launched as “Specified Domestic Transactions.”
- The following transactions exceeding Rs 5 Crore related to domestic parties qualify as Specified Domestic Transactions
- Transactions pertaining to profit-linked tax incentives businesses such as infrastructure facilities, u/s 80-IA, and SEZ units, us/ 10AA
- Any expenditure for which deduction is claimed while computing profits of a business
- Any other transactions as specified above
- Taxpayers also need to maintain detailed information and documentation regarding International Transactions undertaken with AEs.
It can be further divided into two parts-
- Firstly, a group profile, information on the taxpayer’s ownership structure, and a business overview of the AEs and the taxpayer, including international transaction details such as the value, terms, nature, and quantity. as per the rules, the taxpayer also needs to document a comprehensive transfer pricing study.
- Secondly, adequate documentation to substantiate the information, analysis and studies documented under the first part of the rule. It also requires some supporting documents, including reports, government publications, studies, market research studies and technical publications undertaken by reputable institutions, relevant agreements, price publications, contracts and correspondence.
- The company needs to submit Form 3CEB, which is duly audited by a Chartered Accountant within the prescribed time limit, by the end of the fiscal year.
- The time limit for furnishing Form No. 3CEB- On or before November 30th of the relevant AY