Increasing participation of multi-national groups in economic activities in the country has given rise to new and complex issues emerging from transactions entered into between two or more enterprises belonging to the same multi-national group. With a view to provide a detailed statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India, government has incorporated various acts keeping in mind various aspects in this relation.
In the case of multinational enterprises, the Finance Act, 2001 substituted section 92 with a new section and introduced new sections 92A to 92F in the Income-tax Act, relating to computation of income from an international transaction in relation to the arm's length price, meaning of associated enterprise, meaning of information and documents by persons entering into international transactions and definitions of certain expressions occurring in the said section.
Under the income-tax provisions, business entity in India who has undertaken any transaction with its non-resident associated enterprises, needs to be file a transfer pricing certificate in prescribed form (Form 3CEB). The certificate is to be issued by a Chartered Accountant certifying the arm’s length pricing of the said transactions. Further the Indian business entity needs to maintain transfer pricing documentation and study to justify its transaction and respective consideration for those transactions. This study contains separate analysis of each type of transactions and its justification regarding arm’s length pricing.
What is Section 92?
As substituted by the Finance Act, 2002 states that any income arising from an international transaction or where the international transaction comprise of only an outgoing, the allowance for such expenses or interest arising from the international transaction shall be determined having regard to the arm's length price. The provisions, however, would not be applicable in a case, where the application of arm's length price results in decrease in the overall tax incidence in India in respect of the parties involved in the international transaction.
Arm's length price: In accordance with internationally accepted principles, it has been provided that any income arising from an international transaction or an outgoing like expenses or interest from the international transaction between associated enterprises shall be computed having regard to the arm's length price, which is the price that would be charged in the transaction if it had been entered into by unrelated parties in similar conditions. The arm's length price shall be determined by one of the methods specified in Section 92C in the manner prescribed in Rules 10A to 10C that have been notified vide S.O. 808 E dated 21.8.2001.
Arm's length priced can be calculated by one of the specified methods:
The taxpayer can select the most appropriate method to be applied to any given transaction, but such selection has to be made taking into account the various factors prescribed in the Rules. With a view to allow a degree of flexibility in adopting an arm's length price the proviso to sub-section (2) of section 92C provides that where the most appropriate method results in more than one price, a price which differs from the arithmetical mean by an amount not exceeding five percent of such mean may be taken to be the arm's length price, at the option of the assessee.
If your answer is "yes" to one or more of the above questions, your company will in all probability require a transfer pricing review.
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Transfer Pricing Solutions
We at Monika Aashish & Co. have skilled team of tax practitioners, economists and financial analysts who are masters in their fields. They focus on reducing threats and increasing opportunities to enhance corporate performance through proactive transfer pricing planning.
The integration of tax and economics is one of the most important attributes of our transfer pricing capabilities. This unified approach enables us to develop and implement transfer pricing methodologies that are analytically sound, flexible to deal with "real world" situations and fully compliant with the transfer pricing regulations. Further, this approach also ensures a creative and dynamic tax planning process for our clients.
As part of our transfer pricing service, we offer advice and assistance in the following areas: