Transfer Pricing

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Indian Transfer Pricing Regulations

Compliance requirement Legislature
Transfer pricing Documentation • Indian transfer pricing regulations require that taxpayers to whom transfer pricing regulations apply, to maintain detailed transfer pricing documentation incorporating the following:
- Description of the entities involved in related party international transactions;
- Description of international transactions;
- Analysis of functions performed / assets involved and risks assumed by the parties involved in related parties transactions;
- Analysis of the relevant industry;
- Economic analysis for each class of international transaction between related parties.
Accountants Report i.e. Form No. 3CEB • Transfer pricing certificate (in Form 3CEB) is required to be prepared and filed along with the return of Income.

Transfer Pricing : Significant Costs of Non-compliance

The cost of failure to fully comply with Transfer Pricing regulations could be staggering as the following table shows. Whereas filing an accountant's report is a relatively easy aspect of compliance; others such as satisfactory documentation, satisfaction of the arm's length criterion require expertise and planning.

Defaults Quantum of Penalty
Section 271AA
• Failure to keep and maintain Transfer Pricing documentation.
• Failure to report such transaction which is required to do so.
• Maintaining or furnishing incorrect information or documents.
• 2% of value of each international transaction for each such failure.
Section 271G
• Failure to furnish / submit any information / document to the transfer pricing officer.
• 2% of value of international transaction for each such failure.
Section 271BA
• Failure to furnish accountant’s report in Form No. 3CEB.
• INR 100,000
Section 271(1)(c)
• Transfer pricing adjustment – Concealment of income or furnishing inaccurate particulars of income
• 100-300% of amount of tax sought to be evaded on concealment of particulars of income or furnishing inaccurate particulars of such income

Since many of our client companies are part of multinational groups, almost all of those companies require transfer pricing reports, and most require transfer pricing documentation. The clients include manufacturers, exporters, traders, distributors, service providers, project management groups, EPC groups, licensees, franchisees etc. The intra-group transactions are of diverse nature , and include purchase/sale of goods and services, IPR's, brand license, royalties, technology transfer, cost sharing arrangements, deputation of personnel, central services charge/recharge, managements fees, financing transactions and the like. Our team handles various aspects including proactive planning for transfer pricing transactions and the business model, advising on choice of arm's length method and acceptable earnings benchmarks, compliance documentation, assisting with robust inter-company agreements, defending transfer pricing policies in case of litigation etc.

Transfer Pricing Services

Factual analysis of the services rendered

Conduct Fact finding exercise to include:
• Review of inter-company agreements
• Interview of operations personnel from various departments and business lines
• Review of financial information
Build / Assist in collation of evidences for services rendered

Evidences may be in the form of:
• Correspondences like e-mails containing proprietary information;
• Minutes, presentations of services provided
• Process manuals, plans, brochures etc., relating to standard operating procedures
• Policy manuals
• Requests made and evidence of solutions received
• Visit records of foreign officials to render services
Analysis of benefits derived

Analyze the tangible and intangible benefits received such as:
• Increase in sales
• Decrease in specific costs
• Lower level of attrition
• Increase in capacity utilization / efficiency
• Market penetration, etc.
Prepare detailed documentation from TP audit perspective

• This should contain all the analysis undertaken and evidences collated
• This should form the first line of defense in case of an audit