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Transfer Pricing Advisory

About This Plan

With incremental adoption of globalization and rapid growth in several multi-national companies trying to establish their operation facilities, production houses in India, taxation in India is being aligned with global tax practices.


Therefore, it is incredibly important for every business entity to develop a thorough understanding of the transfer pricing regulations applicable on an Indian registered business entity, to plan the way for a business as well as its tax structure.


What is Transfer Pricing?


Transfer pricing generally refers to the price(s) of transactions controlled and practiced between associated enterprises. Such pricing decisions may be taken under conditions differing from independent enterprises.


Transfer pricing is the value attached to transfers of goods, services, and technology between related entities located in different territories. It also refers to the value attached to transfers between unrelated parties which are controlled by a common entity.


In other words, Profits accruing to the parent company can be increased by setting high transfer prices to siphon off profits from subsidiaries registered and operating in high tax countries and low transfer prices to divert profits to subsidiaries located in low-tax jurisdictions.


Why is it mandatory for related parties to document their transfer pricing?


Finance Act, 1994 had introduced section 92A to 92F under the Income Tax Act. This separate code on transfer pricing under Sections 92 to 92F of the Indian Income Tax Act, 1961 covers intra-group cross-border transactions which are applicable from 1st April 2001, and specified domestic transactions which are applicable from 1st April 2012.


The Income Tax Act, 1961 now prescribes that income arising from international transactions or specified domestic transactions between associated enterprises should be computed having regard to the arm’s-length price.


It has been notified that any allowance for an expenditure or interest or allocation of any cost or expense arising from an international transaction or specified domestic transaction also shall be determined having regard to the arm’s-length price.


What are specified domestic transactions on which transfer pricing regulations are applicable?


Specified Domestic Transactions (SDTs) were inserted in the Income-tax Act, 1961 by the Finance Act, 2012 wherein specified transactions between related domestic companies were considered as specified domestic transactions and are subject to domestic transfer pricing regulations.


Criteria for transactions to be classified as Specified Domestic Transaction is:


  1. The transaction should not be an international transaction.
  2. The transaction should be covered under any of the limb (ii) to (vi) of section 92BA.
  3. The aggregate of such transactions entered by the taxpayer should exceed the threshold limit of INR 20 cores (from the assessment year 2016-17).


As per the provisions of the Act, once a transaction gets classified as a Specified Domestic Transaction, then all the compliance requirements relating to transfer pricing documentation, accountant’s report, etc. shall apply to it in the same manner as applicable for international transactions.


What is the relaxation amendment brought in by the finance act, 2017 for specified domestic transactions?


Inclusion of domestic transactions with parties specified under section 40A(2)(b) within the purview of Domestic Transfer Pricing resulted in excessive compliance on part of the taxpayers as all the transactions with related enterprises above a threshold limit were subjected to scrutiny and documentation from the transfer pricing perspective. Moreover, on analysis of certain items provided in Section 40A(2)(b), such as managerial remuneration posed practical difficulties to the taxpayers as no suitable comparable data are ordinarily available in the public domain to compute and compare arm’s length price.


Therefore, to significantly reduce the burden of such compliance, the Finance Act, 2017 has omitted the transactions with persons referred to in section 40A(2)(b) from the purview of domestic transfer pricing regulations.


As a result, the provisions of SPECIFIED DOMESTIC TRANSACTIONS shall apply only in cases where one of the parties to the transactions is claiming specified deductions/exemptions as per the relevant sections. The amendment shall be applicable from Assessment Year 2017-18 onwards.

How It's Done

SSI assists and provides advisory to its clients by:


  • Studying the specific industry

  • Analysis of Invoicing methods adopted,

  • Analysis of reportable transactions

  • Determination of arm’s-length principle and pricing methodologies

  • Computation of transfer pricing

  • Compliance with transfer pricing taxation rules and requirements of the tax authorities.

  • Transfer pricing study Report

  • Accountant’s report

Information Guide

What are the compliances related to the accountant’s report in the Indian transfer pricing code?


It is mandatory for all taxpayers to obtain an independent accountant’s report in respect of all international transactions between associated enterprises and specified domestic transactions.

Such a report has to be furnished by the due date of the tax return filing (i.e. on or before 30 November following the end of the financial year). This report requires the accountant to give an opinion on the proper maintenance of prescribed documents and information by the taxpayer. Furthermore, the accountant is required to certify the correctness of an extensive list of prescribed particulars.


What are the threshold limits for the applicability of transfer pricing regulations on domestic transactions concluded in India?


For a transaction to be covered under the definition of Specified Domestic Transaction, the aggregate value of all the specified transactions as per the provisions of Section 92BA should exceed the Rs. 20 crores with effect from Assessment year 2016-17.


Such threshold limit for Specified Domestic Transactions can be computed on a Gross basis or Net basis. If the taxpayer is availing input credits for indirect tax levies such as Good and services tax, etc. then such threshold limit shall be computed excluding such indirect taxes. However, where the taxpayer is not availing such credits, then such computation shall be made on a gross basis i.e., including the amount of such taxes.


What is Domestic Transfer Pricing
The Finance Act 2012 brought certain Specified Domestic Transactions (‘SDTs’) under the umbrella of transfer pricing regulations in India. The transactions exceeding INR 200 million are covered under such provisions, which includes transactions with units eligible for a tax holiday, and newly set up manufacturing companies covered u/s 115BAB.

Following are the due dates of submitting the required three-tier documentation, as per the Indian transfer pricing calendar –

1. Master File: 30th November

2. Local File: 30th November

3. Country-by-Country Report: 31st December
What is the scope of transfer pricing?
Indian transfer pricing regulations are applicable on international transactions between international related parties. Further, Indian regulations also cover certain domestic transactions between two related Indian parties under the transfer pricing scenario.
What is transfer pricing and why is it done?
Under the terms of the layman, the transfer price is the price at which a Party transfers its related party products or services.

In order to ensure that global parties conduct their business in a way that no base erosion or profit shift occurred, transfer pricing regulations and compliance were implemented. Each tax jurisdiction, therefore, receives its own duty.

To understand transfer pricing compliance in a simple manner, the related parties transacting, need to ensure that they conduct business in such a manner as if they’d be dealing with an unrelated party in an uncontrolled scenario, i.e., at arm’s length.
What can be the few examples of international transactions subject to transfer pricing?
1. Purchase, sale, lease of tangibles or intangibles;

2. Capital financing such as loan, purchase/sale of equity;

3. Provision/availing of services;

4. Cost apportionments, allocations, contributions;

5. Cost reimbursements;

6. Transaction of business restructuring or re-organization;

7. Transactions having a bearing on profits, income, losses, or assets; and

8. Transactions with unrelated parties as a result of prior arrangements with related parties.

Price available on request

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