Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: list of goods taxed at 4% :: cpt :: form 3cd :: TDS :: ACCOUNTING STANDARDS :: ARTICLES ON INPUT TAX CREDIT IN VAT :: articles on VAT and GST in India :: VAT RATES :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT Audit :: empanelment :: ACCOUNTING STANDARD :: due date for vat payment :: Central Excise rule to resale the machines to a new company :: TAX RATES - GOODS TAXABLE @ 4%
« General »
 Banks warn share tax hike threatens Paris' post-Brexit appeal
 PMC may decide on property tax rebate for IT firms this week
 I-T Dept is giving out certificates of appreciation. Have you received yours?
 Government works on ironing out benefits refund mechanism for exportersa
  Tax officials are using an IDS provision to question transactions beyond six-year-limit
 Tax-free bonds rally like midcap funds
 Senior citizens do not have to pay advance tax on salary and interest income
 GST: Audit commissioners to get adjudication powers
 Interest on NRE rupee account can be exempt from tax under FEMA
 Impact of GST on Real Estate Sector
 GST regime: Tax payers allowed to take option of third-party interfaces

We'll tell you what your expenses weren't: CBDT
December, 23rd 2011

I-T transfer pricing wing disallows tax deductions sought by MNCs India arms.

How much should the Indian arm of Sony be charging its parent corporation for marketing its products? Or Suzuki Motor of Japan get from Maruti Suzuki here for use of its brand name?

If your answer is whatever they decide internally, the Central Board of Direct Taxes begs to differ. Or, rather, insists on differing whether the arms like it or not. At stake is a hell of a lot of money.

In the case of Sony India, for instance, the CBDT foxhound in question has proposed, in recent orders for the 2008-09 assessment year, adjustment of income upwards by as much as Rs 121.9 crore on account of the advertising and marketing promotion (AMP) expenses in 2007-08.

Theres a similar enhancement in income of Rs 311.9 crore of AMP deductibles for Maruti Suzuki and another addition of a further Rs 237 crore on payment of royalty for use of the Suzuki brand name. BMW India has been told to forget the idea of explaining why its like AMP expenses should be a lot lower the taxman has raised their taxable income for the year 2007-08 by Rs 48.7 crore.

The issue
Transfer pricing is the economists term for what is paid when goods or services are sold between different divisions of the same company or different companies within a group. One consequence of the economys globalisation, with every major and medium enterprise eager to become a multinational corporation or join hands with one, is to make this exercise hugely livelier than in earlier decades. And, with state treasury mandarins permanently on a hunt for ways to collar more revenue, the transfer pricing department of CBDT has little time or inclination for leisure.

Whence these huge adjustments in AMP and other expenses claimed by these companies as tax deductibles. Transfer pricing rules in most countries are based on what is referred to as the arms length principle to establish transfer prices based on an analysis of pricing in comparable transactions between two or more unrelated parties dealing at arms length The rules permit related parties to set prices in any manner but it is then the job of tax authorities to compare what is charged with prices or measures of profitability for transactions between unrelated entities. In the process, determining what is or what ought to be arms length.

How it works
The result is a feast for tax lawyers and rule drafters-cum-arguers. In each such case, the transfer pricing officer in question declares the calculations offered in defense as unacceptable , having exceeded as compared to the uncontrolled comparable as the edict goes in the case of Sony India here, with much more on these lines. In effect, deductible(s) disallowed, pay up. The department in question has made similar upward adjustments in the case of at least a dozen more majors, across the electronics, footwear, mobile (Nokia India has been told to consider its taxable income Rs 431 crore higher for the year in question), consumer goods and other sectors.

Transfer pricing additions in income for assessment year 2008-09
Company AMP Adjustment* Total Adjustment
Sony India 1,218,822,482 1,218,822,482
BMW India 486,529,022 486,529,022
Maruti Suzuki 3,118,800,000 5,491,242,202
Nokia India 3,728,601,144 4,310,815,993
*Advertisement and marketing promotion.  (Figures in Rs cr) Source: Transfer Pricing Orders

The companies in question did not reply to email sent to them by Business Standard for their comments on the adjustments made by the transfer pricing department. They have contested their respecive cases with the transfer pricing office. TP consultant Tarun Chaturvedi said after the TPO order, the assessing officers in question would formally issue the tax demands, which the companies can either accept or go to the dispute resolution mechanism, where the time taken to decide is within nine months. After which, the company pays or appeals to the tax tribunal. He says in a majority of cases, the outcome has gone against the companies.

The income tax department and its counterpart in charge of indirect taxes are under urgent orders to scramble for more revenue to plug an alarming fiscal deficit. And, say tax experts, transfer pricing adjustments have become a focus area of the I-T tax department for raising more this year.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Experience

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions