Transfer Pricing Regulations
TP regulations : Global
OECD make “Transfer Pricing Guidelines”. TP Guidelines provide as commonly accepted practices by the tax establishments
TP regulations : India
- The Finance Act 2001 present the complete TPR w.e.f. 1st April 2001
- The Income Tax Act
- Other related Acts
Accounting Standard 18 : Need revelation of ‘any elements of the related party transactions essential for an considerate of the financial statements’.
Related Parties :
- Control by ownership : 50% of the voting right
- Control over composition of board of directors : Power to appoint or remove the directors
- Control of substantial interest : 20% or more interest in the voting power
AS-18 and Transactions:
- Purchase and sale of goods;
- Rendering or receiving services;
- Agency arrangements;
- Leasing arrangements;
- Transfer of research and development;
- License agreements;
- Guarantees and collaterals;
- Management contracts.
Income Tax Act and Transfer Pricing:
- Finance Act 2001 substituted the old section of 92 of the ITA by sections 92, 92A to 92 F.
- These sections are the backbone of Indian Transfer Pricing Regulations.
- These sections describe the sense of connected parties, global transactions, pricing methodologies etc.
TPR: Some Important Concepts
- Income/Expenses/Cost arising from an international transaction shall be computed having regarded to arm’s length price (ALP).
- ALP provisions can be applied if it leads to decrease in taxable income or increase in losses.
Associate Enterprise: 92A
- Direct Control/Control through intermediary
- Holding 26% of voting power
- Advance of not less than 51% of the total assets of borrowing company.
- Guarantees not less than 10% on behalf of borrower
- Appointment of more than 50% of the BoD
- Dependence for 90% or more of the total raw material or other consumables
International Transactions: 92B
- Transaction between two or more AE of which either both or anyone is a non-resident.
- – Purchase/Sale/Lease
- – Provision of service
- – Lending or borrowing