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
  • AS-18
  • 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;
  • Finance
  • 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.
  • Transactions:
    • – Purchase/Sale/Lease
    • – Provision of service
    • – Lending or borrowing
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