The Transfer pricing Regulations (TPR) were introduced in India dive the Finance Act, 2001 by substitution of the existing 92 and introduction of new sections sections 92A to 92F in the Income Tax Act (‘Act’) and relevant rules 10A to 10E in the Income Tax Rules, 1962. The regulations are applicable to relevant international transactions entered into from 1st April 2001.
TPR was introduced with a view to provide a detailed statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India, in the cases of multinational enterprises, and also introduced new s 92A to 92F in the Act, relating to computation of income from an international transaction having regard to the arm’s length price, meaning of associated enterprise, meaning of international transaction, computation of arm’s length price, maintenance of information and documents by persons entering into international transactions and definitions of certain expressions occurring in the said sections.
The legislative intention, underlying the TPR, is to prevent the shifting of profits by manipulating prices charged or paid in international transactions, thereby eroding India’s tax base. The explanatory memorandum of Finance Bill, 2001 explains that the TPR was introduced to curb transfer pricing abuse.
The following are the important statutes of the law :
- Each person or association who has involved in an international transaction should maintain an up-to-date record of each transaction as prescribed by the legislation.
- All income acquired by the company by means of any international transaction shall be calculated at arm’s length price. There are various methods to calculate the arm’s length price, depending on the nature and type of the transaction, the nature of the group or the association involved, or any other features of the transactions involved. The Central Board of Direct Taxes, generally known as the ‘Board’, introduces these methods. Some of them include the resale price method, cost plus method, comparable uncontrolled price method, and transactional net margin method.
- If there are two or more appropriate prices assumed for a certain transaction, the arm’s length price will be calculated as the average of the prices.
- At the end of a financial year, the person or group involved in an international transaction should submit the report of it in Form 3CEB under the guidance of a Chartered Accountant. This form has to be filed before he files the Income Tax return of the same period.
How We May Assist you ?
- Planning and advisory services on Related Party Transactions. Our expert advice can guide the associated enterprises on transfer pricing policies and measures more absolute and justifiable.
- Helps in evaluation of alternative business structures from a transfer pricing planning perspective in order to optimize allocation of revenues between group entities
- TP Audit under IT Act and Certification 3CEB
- Assistance in preparing TP documentation as required under Rule 10D
- Representation before TP Authorities or Appellate Authorities in case of disputes and