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.
- 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.
Arm’s Length Principle – Transfer Pricing Why Arm’s length price? The cornerstone of the Transfer Pricing Provision is determining an Arm’s Length Price (‘ALP’) of a transaction between Associated Enterprises. This course will provide you the methods to be adopted for determining the ALP and factors which needs to be considered in …
Economic analysis – Transfer Pricing Characterization of the transacting parties For applying the above methods, following factors needs to be analyzed with respect to the transactionsSpecific characteristic of the property transferred or services renderedThe functions performed taking into account assets employed and risks assumed by the respective parties.Characterization of entities based on …
FAR Analysis – Transfer Pricing Functional, asset and risk analysis is often referred to as FAR analysis.When transactions between the AEs are examined for the purpose of determining the ALP, one has to analyse the three components closely, namely Functions performed Functions performed by different parties are examined to ascertain which party performs …
Determination of ALP – Transfer Pricing Rule 10C deals with the determination of most appropriate method. Under this Rule, the method is best suited to the facts and circumstances, and which provides the most reliable measure of ALP in relation to the international transaction will be considered to be the MAM. …
Transfer pricing audit cycle Reference to Transfer Pricing Officer Section 92CA provides for procedure for reference to a Transfer Pricing Officer (‘TPO’) of any issue relating to computation of ALP in an international transaction. The procedure is as under:The option to make reference to TPO is given to the Assessing Officer. He …
Transfer pricing adjustment and consequence Transfer pricing adjustment If the transaction price is not within the ALP range or the tolerance band and if adopting ALP would not reduce the profit or increase losses etc, then the difference between the ALP and the transaction price is added to the income of the …