Transfer Pricing India CS GAURAV +919990694230

Transfer Pricing
INDIA /INTERNATIONAL
CSGAURAV+919990694230
gauarvdelhirav@gmail.com
www.csgauravsharma.com
Friday,
November
07, 2014
Transactions
Internal
External
(Within the country)
(outside the country)
Inter Company
Revenue Profit
Capital Gain
Royalty
Intra Company
Inter Comapny
Control System
Non-Related:
cost centres
Profit/Dividend/Royalty
revenue centres
Forex Fluctuations
profit/Investment centre
Accounting
Related
Profit/Dividend/Royalty
Transfer Pricing
Forex/Accounting
Friday,
November
07, 2014
Intra Company
Control Systems
Forex Fluctuations
Accounting
Transfer Pricing
Transfer Price: What and

Why?
TP means the value or price at which
transactions take place amongst
related parties.
TP are the prices at which an
enterprise transfers physical goods and
intangible property and provides
services to associated enterprises
TP gain significance because these can
be used by the controlling party to
their advantage to minimise tax
incidence.
Friday,
November
07, 2014
Transfer Price: What and

Why?
Approximately 60% of the total transactions across the

world are between related parties.
If the transactions are across different tax jurisdictions,

where tax rates are different, shifting is beneficial.
Friday,
November
07, 2014
Factors Affecting Transfer

Pricing
Internal factors: Performance Measurement and

Evaluation
External Factors:
Accounting Standard
Income Tax
Custom Duty
Currency Fluctuations
Risk of Expropriation
Friday,
November
07, 2014
Transfer Price Regulations

International
OECD formulated
Guidelines on transfer
pricing. They serve as
generally accepted
practices by the tax
authorities
India
The Finance Act 2001

introduced the detailed
TPR w.e.f. 1st April 2001
The Income Tax Act
AS-18
Other Relevant Acts
Friday,
November
07, 2014
Accounting Standard 18
Requires disclosure of any elements of the related party
transactions necessary for an understanding of the
financial statements.
Friday,
November
07, 2014
Related Parties
Control by ownership
Control over composition of board of directors
50% of the voting right
Power to appoint or remove the directors
Control of substantial interest
20% or more interest in the voting power
Friday,
November
07, 2014
AS-18 and Transactions
Purchase and sale of goods;

Rendering or receiving services;
Agency arrangements;
Leasing arrangements;
Transfer of research and development;
Licence aggrements;
Finance
Guarantees and collaterals;
Management contracts.
Friday,
November
07, 2014
Income Tax Act and TP
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 TPR.
These sections define the meaning of related parties, international

transactions, pricing methodologies etc.
Friday,
November
07, 2014
TPR: Some Important

Concepts
Income/Expenses/Cost arising from an international

transaction shall be computed having regard to
arms length price (ALP).

ALP provisions can be
applied if it leads to
decrease in taxable income
or increase in losses.
Friday,
November
07, 2014
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
Friday,
November
07, 2014
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
Friday,
November
07, 2014
Arms Length Price
Price which two independent firms would agree on.
Price which is generally charged in a transaction

between persons other than associated enterprises.
Friday,
November
07, 2014
Arms Length Price: 92C
Comparable uncontrolled price method
Resale price method
Cost plus method
Profit split method
Friday,
November
07, 2014
Comparable uncontrolled
price method
CUP method compares the price transferred in a

controlled transaction to the price charged in a
comparable un-controlled transaction.
CUP method is the most direct and reliable way to apply

the arms length principle.
Friday,
November
07, 2014
Resale price method
The resale price method begins with the price at which

a product is resold to an independent enterprise (IE)by
an associate enterprise.
X sold to AE at Rs. 1000 (profit: 300)
AE sold to an IE at Rs. 2000
(profit of Rs. 500 for relevant IE)
Arms length price = 2000 - 500 = 1500
Friday,
November
07, 2014
Profit Split Method
PSM is used when transactions are inter-related and is

not possible to evaluate separately.
PSM first identifies the profit to be split for the AE. The
profit so determined is split between the AE on the
basis of the functions performed/assets/CE
Friday,
November
07, 2014
Cost Plus Method
In CP method, first the cost incurred is determined. An

appropriate cost plus mark-up is then added to the cost
to arrive at an appropriate profit. The resultant figure is
the arms length price.
Friday,
November
07, 2014
Some Transactions subject to ALP

Purchase at little or no
cost.
Payment for services
never rendered.
Sales below MP/
Purchase above MP
Interest free
borrowings
Exchanging property
Selling of real estate at
a price different from
MP
Use of trade names or
patents at exorbitant
rates even after their
expiry.
Friday,
November
07, 2014
Some Cases
Kinetic Honda Motors
Collaborator: Honda Motor Co. Ltd Japan and
their Subsidiary Honda Trading Corpn. Japan
Hero Honda Motors Ltd.

Parent: Honda Motor Co. Ltd Japan and their
Subsidiary Honda Trading Corpn. Japan
Friday,
November
07, 2014
Some Cases
Peico Electronics & Electricals Ltd.
Parent: Phillips Netherlands and its subsidiaries
Asea Brown Boveri

Parent: ABB Switzerland and its subsidiaries
Videocon Group
Collaborators: Toshiba Co., Mitsubishi Co
Friday,
November
07, 2014
Transfer Pricing
INDIA /INTERNATIONAL
CSGAURAV+919990694230
gauarvdelhirav@gmail.com
Friday,
November
07, 2014

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Transfer Pricing

(Within the country)

(outside the country)

Transfer Price: What and

Transfer Price: What and

Approximately 60% of the total transactions across the

If the transactions are across different tax jurisdictions,

Factors Affecting Transfer

Internal factors: Performance Measurement and

Transfer Price Regulations

The Finance Act 2001

The Income Tax Act

Other Relevant Acts

Control over composition of board of directors

50% of the voting right

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;

Income Tax Act and TP

Finance Act 2001 substituted the old section of 92 of the ITA by

These sections are the backbone of Indian TPR.

These sections define the meaning of related parties, international

TPR: Some Important

Income/Expenses/Cost arising from an international

arms length price (ALP).

Associate Enterprise: 92A

Direct Control/Control through

Transaction between two or more AE of which either

Arms Length Price

Price which two independent firms would agree on.

Price which is generally charged in a transaction

Arms Length Price: 92C

Comparable uncontrolled price method

Resale price method

Cost plus method

Profit split method

CUP method compares the price transferred in a

CUP method is the most direct and reliable way to apply

Resale price method

The resale price method begins with the price at which

X sold to AE at Rs. 1000 (profit: 300)

AE sold to an IE at Rs. 2000

(profit of Rs. 500 for relevant IE)

Arms length price = 2000 - 500 = 1500

Profit Split Method

PSM is used when transactions are inter-related and is

Cost Plus Method

In CP method, first the cost incurred is determined. An

Some Transactions subject to ALP

Hero Honda Motors Ltd.

Asea Brown Boveri

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