CBDT notifies secondary adjustment transfer pricing rules
January, 15th 2018
The Central Board of Direct Taxes (CBDT) has notified the rules for operationalising the provisions of secondary adjustment in the arena of transfer pricing.
The Finance Act, 2017 , had introduced the concept of secondary adjustment. In simple words, if there is an upward transfer pricing adjustment made to the income of an Indian company that has earned such revenue through transactions with its parent or group companies (known as related parties), then the quantum of such addition needs to be brought back to India within a stipulated time. Else, it will be treated as a loan given by the Indian company, which will attract a notional interest charge and a tax on such interest income.
Now, CBDT has notified Rule 10CB, which prescribes the time limit for repatriation of the excess money from the overseas group company and the rate of interest which would apply for failure to repatriate within the prescribed time.
An official release from the Ministry of Finance (MoF) stipulates that: "The time limit of 90 days for repatriation of excess money shall begin only when the primary adjustments exceeding Rs. one crore made in respect of the assessment year 2017-18 or later, attains finality. Where the transfer pricing order is appealed against by the taxpayer, the time limit for repatriation shall commence only after the appeal is finalised by the appellate authority." "Separate rates of interest have been provided for international transactions denominated in Indian currency and in foreign currency. The rates of interest are applicable on an annual basis," adds the release.
Jiger Saiya, tax partner at BDO India says: "The rate of interest provided are market driven , based on the LIBOR/ SBI lending rate and take into account the denominated currency of underlying international transaction (Indian or foreign currency). Timely notification of rates and manner of computation will help in avoiding interpretation and application issues in times to come."
"The rules have not provided clarity as to whether interest computation will commence after expiry of 90 days period or it will commence from the date of deemed loan to a group company as a result of primary adjustment. If done, this will make clear the government's intent and simplify the provision," adds Saiya.
There are a few more challenges, according to him. "Though the CBDT have shed light on significant transfer pricing issues in recent past, some of contentious issues regarding this new framework such as corresponding adjustment in books of foreign group companies, or practical remittance challenges under foreign country exchange control regulations, need to be dealt with. Ensuring a comprehensive clarity and direction will be appreciated by taxpayers."