Consultancy on Transfer Pricing (TP Study)
Transfer Pricing, the term defines as a price assumed to be charged by a company's part to another part of the same company so as to evaluate each division's profit and loss individually. Transfer pricing studies are typically conducted by experienced accountants and economists with considerable background and experience in international tax matters. By applying and documenting various testing methods, it attempts to determine whether the transactions were conducted at arm's length and will survive scrutiny from the tax authorities.
As per provisions of the Income Tax Act, 1961 - Income from an international transaction shall be computed having regard to the Arm's length Price (correct market price).
And it is not only the sale price that shall be determined as per Arm's length price but even the allowances for any expenses and interest arising from an international transaction will be computed evenly.
The above rule applies even where the international transaction shall comprise of only outgoings i.e. expenses, interest etc.
The definition of International transaction under the transfer pricing regulations is very wide and in its scope, it includes transaction between two associated enterprises in the nature of:
- Purchase, sale or lease of tangible or intangible property or
- Provision of services or
- Lending or borrowing of money or
- Any other transaction having a bearing on the profits, income, losses or assets of such enterprises.
It would also include a mutual agreement or arrangement between two or more enterprises for allocation of cost/expenses incurred in connection with a benefit, service, and facility provided or to be provided.
Two enterprises shall be deemed to be associated enterprises if, at any time during the previous year-
(a) one enterprise holds, directly or indirectly, shares carrying not less than 26% of the voting power in the other enterprise; or
(b) any person or enterprise holds, directly or indirectly, shares carrying not less than 26% of the voting power in each of such enterprises; or
(c) a loan advanced by one enterprise to the other enterprise constitutes not less than 51% of the book value of the total assets of the other enterprise; or
(d) one enterprise guarantees not less than 10% of the total borrowings of the other enterprise; or
(e) more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or
(f) more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or
(g) the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or
(h) 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, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or
(i) the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or
(j) where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or
(k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or
(l) where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or
(m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed.
Our well defined assist our clients to maintain an effective documentation process maintaining a balance in the complex tax structure. Our worldwide coordination with professionals results in effective representations in front of the authorities.
We offer following services with regard to Transfer Pricing:
- Preparing a transfer pricing study
- Providing analysis on comparables
- Providing a complaint to the TP-audit
- Handle matters in appellate stages / DRPs
- Providing legal briefs / advises on tax avoidance while entering international transactions
- Find a way out of the legal morass
- Providing in-house training, drafting agreements, and billing methodologies.
- Advisory services pertaining to Transfer Pricing