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: ACCOUNTING STANDARD :: empanelment :: VAT RATES :: form 3cd :: TAX RATES - GOODS TAXABLE @ 4% :: due date for vat payment :: cpt :: articles on VAT and GST in India :: Central Excise rule to resale the machines to a new company :: VAT Audit :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: list of goods taxed at 4% :: TDS :: ACCOUNTING STANDARDS
Transfer Pricing »
 US, Mexico agree to transfer pricing framework for maquiladoras
 Indian tax official sees expanded role for BEPS inclusive framework, addresses transfer pricing local file
  Transfer Pricing analysis of professional services provided by related-party individuals and corporations
 Transfer Pricing analysis of professional services provided by related-party individuals and corporations
 FinMin to issue rules for norms under BEPS
  CBDT signs five unilateral advance pricing agreements
 UN tax committee to consider major updates to transfer pricing manual, model tax treaty
 CRA intensifies scrutiny of complex transfer pricing tax avoidance scheme
 New transfer pricing requirements in Poland
 Additional Tax Assessment Following Transfer Pricing Control Audit
 Aligning customs with transfer pricing operations

NRI setting up business in India? Watch out for transfer pricing
February, 23rd 2016

Over the past decade, India has become a big opportunity for global entrepreneurs looking to grow a successful business. The liberalization, booming middle class, and growing jobs and salaries have made India an attractive destination. At the same time, setting up a business in India means navigating through the various tax and legal complexities. And one of the major tax laws that needs to be kept in mind is the one on transfer pricing.

A lot of times, Non Resident Indians (NRIs) who have businesses in India as well as their home country do not realize the implications of transfer pricing rules," says Veena Parrikar, Principal - Transfer Pricing, BDO.

For instance, take the case of a US parent company with a subsidiary in India. Both companies may make inter-company transfer of funds, often without a proper documentation and support for tax purposes. They tend to believe that transfer pricing is not an issue because the funds remain within the same commonly owned group, and the intercompany transfers are eliminated in consolidation anyway. While it is true that intercompany transactions are eliminated in consolidation, it is important to remember that the two companies are located in different tax jurisdictions and the tax authorities in each jurisdiction will want it's fair share of profits and taxes" she adds.

So in a series of articles, we will explore the various aspects of transfer pricing. Let us begin with understanding the transfer pricing rules in India.

The crux of Indian transfer pricing rules

Transfer pricing refers to the pricing of intercompany transfers of goods or services. Most countries around the world have implemented transfer pricing regulations with the aim of preventing tax evasion.

The Indian Government tries to ensure that it does not face tax leakages on account of an Indian company overpaying or being underpaid respectively, for goods and services received or rendered, Both these situations will lead to lower profits in India and therefore lower taxes.

Transfer pricing rules can be found under Section 92 to 92F of the Indian Income Tax Act. To put it in a single sentence, the transfer pricing code states that income arising from international transactions between associated enterprises should be computed having regard to the arm's-length price. The three main aspects are 'international transaction,' 'associated enterprise' and 'arms length price.'

What is international transaction?

International transaction means a transaction between two or more associated enterprises involving:

- Sale, purchase or lease of tangible like machinery, equipment, tools, commodities, products etc

- Sale, purchase or lease of intangible property like copyrights, trademarks etc

- Provision of services like market research, design, consultation, administrative services etc

Example: Company A is a US holding company with operations in India through subsidiary company B. Company A transfers $ 1 million to company B for vendor payments. At the end of the financial year, all such amounts must be accounted for as funds received for specific purposes, such as administrative services or consultancy services or any other appropriate transaction. If they are loans, then appropriate interest payments must be reported.

Who are associated enterprises?

Two companies are said to be 'associated' if one company participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. The participation can also be through people.

The Act goes on to define participation. For instance, if one company holds 26% of voting power of the other, the former is said to be participating in the latter. Or if 90% or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, they are said to be associated.

What is arms-length pricing?

Arm's length price means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions. That means the price that would have been charged if the two companies were not related.

There are several methods of calculating transfer price and no method is accorded greater or lesser priority. Therefore, in calculating transfer price of your company, you would need to choose the method that best suits your company's business environment.

Continuing the example of companies A and B, if the payment is indeed toward administrative expenses, then there must be a valid agreement between the two companies showing the agreed price for transfer of services and that price must be at arms-length.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
System Testing Solution Manual Software Testing Solutions Automation Software Testing Solutions System Workflow Testing System Manual Testing

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