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International
Transaction Vs. An Uncontrolled Transaction
Judgment for comparability of transaction: Specific
characteristics of property / services. Functions performed,
assets employed, risk assumed by respective parties.
Contractual terms. Others such as market conditions,
geographical locations, size of market, economic development
etc. Pre-requisites for comparison: Differences, if
any, in transactions being compared, not likely to materially
effect price or cost or profit in open market; Or Reasonably
accurate adjustments can be made to eliminate material
impact. Data for comparison: Relating to financial year
in which transaction is entered into. Data for past
two year may be considered in case it has influence
on transfer price in relation to transactions compared.
Information
& Documentation -1
Information & Specified documents to be collected
at the time of entering into international transactions
and maintained for 8 years from end of relevant assessment
year. In case of transactions continuing for more than
one year, fresh documents not required, only if there
is no significant change. The provisions do not apply
to cases where the aggregate value of international
transactions recorded in the books do not exceed Rs.
10 mill.. In such a case assessee has to substantiate
based on material available with him.
Information
& Documentation – 2
Complete description of ownership structure / shareholding
pattern Profile of Multinational group with complete
description / details of group enterprises with whom
transacted Description of business activities of assessee
and related associated enterprises Nature & terms
of transactions with details of property / services,
quantum, price etc. Description of functions, risks
and assets employed by assessee and associated enterprise
Record of financial estimates Record of uncontrolled
transactions including nature, terms & conditions
of such transactions Record of analysis undertaken for
comparison of uncontrolled transaction with International
transaction Description of methods considered and selected
for Arms length price, as well as justification and
manner in which the same applied Record of actual working
for computation of Arms length price Assumptions, Policies
and Price negotiations critically effecting determination
of Arms length price Details of adjustments made to
Transfer prices to align with Arms length price, and
consequent adjustment made to total income for tax purposes
Any other information / documents
Information
& Documentation – 3 Support Documents
Government publications, reports, studies etc. from
country of residence of associated enterprise Market
research and technical publication reports by national
& international institutions Stock exchange &
commodity market quotations or other price publications
Published accounts & financial statements of associated
enterprise Agreements & contracts with associated
as well as unrelated enterprises Correspondence documents
with associated enterprise evidencing negotiation of
terms Other documents issued according to accounting
policy
Transfer
Pricing - Tax Procedure
Scrutiny of transactions to be based on material in
possession of tax officer, in following circumstances
only: Price charged not determined according to the
provisions Information & documentation not maintained
according to provisions Information & data used
not reliable Assessee fails to furnish information &
documentation required Recourse to assessing officer
: No adjustment if arms length price within range of
± 5% Serve notice on Assessee ask for specific
information/ documentation Determine arms length price
based on material or information or documentation available
Compute total income based on arms length price No deduction
u/s 10A / 10B or chapter VI-A on enhanced income Income
of associated enterprise not to be adjusted Imposition
of penalty
Penalties
Adjustment of income by tax officer Failure to maintain
prescribed information & documentation Failure to
furnish prescribed information / documents requisitioned
Failure to furnish chartered accountants report 100%
to 300% of tax on adjustment 2% of international transaction
value 2% of international transaction value Rs. 100,000
Check-list
List international transactions entered into with associated
enterprises w.e.f. 1.4.2001 Also check for transactions
for which no consideration paid or incurred Review whether
transactions are exceeding or likely to exceed Rs. 1
crore ( for documentation requirement) Shortlist methods
applicable under the transactions for determining arms
length price Collect documents in support of all methods
so selected Select the most appropriate method Identify
& collect and compile all specified documents Chartered
Accountants certificate to cover all such transactions
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