Returns, Audit and other miscellaneous provisions – Transfer pricing

Records to be maintained

  • Each person who has entered into international transaction has to maintain certain information and documents in respect thereof as may be prescribed by Central Board of Direct Taxes (‘CBDT’).
  • Apart from that, if the person belongs to an International Group and if the group meets certain monetary threshold, then the person is required to additionally maintain and submit prescribed information and document regarding the international group.
  • Each person undertaking an international transaction has to maintain the following documents in accordance with Rule 10D of the Income Tax Rules, 1962.
  • Ownership structure
  • Profile of the multinational group alongwith name, address, legal status and country of residence with whom the entity has international transaction
  • Business of the assessee and industry analysis
  • Nature, terms and price of the international transaction made with AE
  • FAR analysis
  • Economic analysis and market analyses, forecast, budgets or any financial estimates prepared by the assessee relevant to the international transaction
  • Record of uncontrolled transaction taken into account for analyzing their comparability with the international transaction including the nature, terms and conditions relating to such transactions
  • A record of analysis performed to evaluate comparability of uncontrolled transactions with relevant international transactions
  • Description of the methods considered for determining ALP and method selected MAM along with explanation as to such method was so selected and how such method was applied in each case.
  • The record of the actual working carried out for determining the ALP including deails of the comparable data and financial information used to apply MAM, adjustments, if any, made
  • The assumptions, policies and price negotiations, if any which have critically affected the determination of ALP
  • Any other information, data which may be relevant.
  • The monetary threshold for the above requirements is Rs 10 million. If the person has entered into international transaction with aggregate value of less than or equal to Rs 10 million, then there is no requirement of maintenance of documentation. However, there would still be requirement to file the return of details of international transaction.

Audit Report

  • Every person who enters into an international transaction during the previous year is required to obtain a report from a Chartered Accountant and furnish such report on or before the specified date on the prescribed form 3CEB.
  • This report is in two parts. The first part of the auditor is report states that he has examined the accounts and records of the assessee relating to the international transactions entered into by the assessee during the relevant year. He also has to certify that the information furnished in the Annexure are true and correct.
  • The second part of the report contains the Annexure, carrying the particulars of the international transaction, AEs, details of transaction, MAM and ALP etc.
  • Till Assessment Year 2018-19 the specified date on which the report has to be furnished was on or before he due date under section 139(1) i.e filing of return of income which is 30th November of the relevant AY. However, in Finance Budget 2020, i.e from AY 2020-21 it is proposed to advance the due date for furnishing the report by one month before the due date under section 139(1) i.e. October 31 every year.

Advance Pricing Agreements (APA)

Advance Pricing Agreements (APA) APA objective APA is an agreement between the taxpayer and the taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in future. Section 92CC empowers the Board to enter into APA with any person undertaking an international transaction.Purpose …
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Mutual Agreement Procedure

Mutual Agreement Procedure Mutual Agreement Procedure (‘MAP’) is a procedure set out in most treaties which permit designated Government representatives to work together to resolve international tax disputes including issues involving double taxation, questions regarding residential status, tax recovery etc. MAP is used to eliminate double taxation that can arise from transfer …
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Fundamentals of Base Erosion and Profit Shifting – Transfer Pricing

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Additional reporting by Multinational companies – Transfer pricing

Additional reporting by Multinational companies – Transfer pricing The OECD had devised many action plans to combat BEPS. OECD also recommended a three-tier documentation approach for transfer pricing under Action Plan 13. Three tier documentation Advantages of three tier reporting Elements of CbC and Master File reporting requirement and related matters have been incorporated …
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Anti-Avoidance measures in certain jurisdictions – Transfer pricing

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Penalties for non-compliance – Transfer Pricing

Penalties for non-compliance – Transfer Pricing The Act has prescribed strict penalties for non-compliance in terms of non-disclosure or incorrect disclosure Question International group shall maintain information and documents in Master file when Consolidated group revenue of the International group is (as reflected in Consolidated Financial Statements of the International Group) is More than …
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