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?

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:

  • Comparable uncontrolled price method;
  • Resale price method;
  • Cost plus method;
  • Profit split method or
  • Transactional net margin method.

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.

Ask yourself?

  • Is your company involved in any international transactions with any of its group companies?
  • Does your company engage in any inter-company transactions affecting the operating results?
  • Does your company render services to/receive services from affiliates free of charge?
  • Does your company pay or/ receive charges pertaining to intangibles or cost allocations?
  • Has your company been incurring operating losses over the past few years?
  • Are you a multinational corporation currently structuring your business plan?
  • Are you restructuring global operations as a result of changing global conditions?

If your answer is "yes" to one or more of the above questions, your company will in all probability require a transfer pricing review.


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:

  • Transfer Pricing Planning Our team helps in evaluation of alternative business structures from a transfer pricing planning perspective in order to optimize allocation of revenues between group entities.
  • Compliance and Documentation We provide assistance in various aspects of transfer pricing documentation preparation and compliance. A transfer pricing study prepared and supported by sound technical positions significantly reduces the risk of a possible tax contingency.
  • Controversy Resolution As revenue authorities become more aggressive in applying transfer pricing regulations, disputes are likely to arise. Monika Aashish & Co. provides a range of services such as transfer pricing audit management and assistance in handling competent authority negotiations.
  • Managing Risk MAC assists companies in preparing a defence against possible future inquiries from revenue authorities by assessing the current transfer pricing policies. The potential risks can then be evaluated and if required, appropriate corrective actions can be implemented. Our global controversy solutions and resources enable our clients to confidently address this dynamic issue with confidence.
  • Integrated Tax Planning MAC specialises in solutions that provide international businesses with an opportunity to comprehensively assess tax position and drive benefits upwards through the company structure. We combine planning, coordination and execution of tax strategies in order to devise flexible solutions that effectively address business changes.

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