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Transfer
Pricing Legislation - Summary
Background
MNCs having transactions with overseas affiliates To
curb practice of shifting profits by altering prices
charged and paid in intra-group transactions Ensures
income reported based on fair price for goods and services
bought or sold and thus fair & equitable tax in
India Place a controlled taxpayer in parity with an
uncontrolled taxpayer Scope of erstwhile section 92
of income tax act, inadequate to detect avoidance of
tax
Transfer
Pricing Rules
International transaction between two or more associated
enterprises Income to be computed at arm’s length
price Documents & information to be maintained Report
of an accountant with tax return
International
Transactions
Transaction between two or more Associated enterprises
Either or both associated enterprises are non-residents
Transaction includes arrangement, understanding or action
in concert whether or not: Formal or in writing; Or
Intended to be enforceable by legal proceedings
Nature
of Transactions
Transaction in Tangible Property Purchase / sale of
raw material, consumables other supplies for assembling
/ processing / manufacturing Purchase / sale of Traded
/ finished goods Purchase / Sale/ lease of any other
tangible immovable / movable property Transactions in
Intangible Property purchase / sale / use of intangible
property such as know-how, patents, copyrights, licenses
etc. Providing of Services such as financial, administrative,
technical, commercial etc. Lending & Borrowing money
including granting / receiving loans / advances Allocation
/ Contribution to any cost or expense incurred in connection
with a benefit, service or facility provided or to be
provided Any other transaction not specifically referred
to above
Deemed
Transactions
Deemed transactions between an enterprise and another:
Prior agreement in relation to the transaction between
other person and the associated enterprise Terms of
transaction are determined in substance between such
other person and the associated enterprise
Associated
Enterprises
SITUATION I Company A participates directly or indirectly
in Management or Control or Capital of Company 1, 2
& 3. Company A will become Associate enterprise
of Company 1,2 & 3
SITUATION
II Company 1, 2 & 3participate directly or indirectly
in Management or Control or Capital of Company A &
B therefore become associated enterprises of Company
A & B. Also Company A & Company B become associated
enterprise of each other.
Deemed
Associated Enterprise
Shareholding in other enterprise or by another person
in both enterprises (26% of voting power) directly or
indirectly; Loan advanced to other constitutes at least
51% of the book value of total assets. Guarantees 10%
of total borrowings. Hold power to appoint governing
board, members, executive directors in the other enterprise.
Wholly dependent on technology, know-how other intangibles
or data in respect thereof, owned or possessed by other.
Influences purchase of 90% of raw material purchased
by the enterprise. Influences sale of goods or articles
manufactured or processed by the other including prices
and other conditions. Enterprises are controlled by
an individual and/ or his relatives. Enterprises controlled
by HUF, its members etc. Where one enterprise is firm,
AOP or BOI, other holds atleast 10% interest in such
firm, AOP or BOI. Relationship of mutual interest as
may be prescribed.
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