· Applicability: From Assessment year 2013-14. The provision of transfer pricing have been extended to cover “specified domestic transactions”. Due Date of filing return of Income is 30th November 2013.
· Coverage: Any Assessee having Specified Domestic Transaction need to comply with the requirements. Specified Domestic Transaction is defined as:
Any of the following transactions not being international transaction, namely:
o any expenditure in respect of which payment has been made or is to be made to a person referred to in section 40A(2)(b);
o any transaction referred to in section 80A;
o any transfer of goods or services referred to section 80IA(8);
o any business transacted between the assessee and other person as referred to section 80-IA (10);
o any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of section 80-IA(8) or 80IA(10) are applicable; or
o any other transaction as may be prescribed,
AND
where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of Rs. 5 crore.
· Illustrative list of Transactions included:
• Expenditure on buying goods
• Expenditure on procurement of services
• Expenditure on interest payments
• Expenditure on salary, training services, marketing expenses
• Expenditure on purchase of tangible and intangible property
• Director’s remuneration, commission, sitting fees
• Group charges
• Reimbursement expenditure
• Guarantee fee expenditure
· Compliance requirement: To maintain prescribed transfer pricing documentation and file report from an accountant in the prescribed format, as applicable for international transactions amongst associated enterprises.
The above would need to be in place by due date of filing tax return, and would in due course, be assessed through the regular assessment procedure by dedicated transfer pricing officers.
· Failure to comply:
o Penalty of 2 per cent of transaction value for failure to report the transaction or for failure to maintain or furnish documentation.
o Thus, even if one forgets to disclose a transaction of INR 5 crore, which is the minimum threshold for reporting, the penalty is INR 10 lakh.
o This penalty is in addition to penalty of INR 1 lakh prescribed u/s 271BA for non- furnishing of Auditors report u/s 92E.
o Adjustments will attract penalties of 100 to 300 percent of the additional tax payable.
· Calculation of Arm Length Price (ALP)
a) Comparable uncontrolled price method;
b) Resale Price Method;
c) Cost Plus Method;
d) Profit Split Method;
e) Transactional Net margin method;
f) Such other method as prescribed by the board
· Transfer Pricing Consultant’s Role:
– Facilitate building of a framework that helps identify and capture domestic related party transactions.
– Develop/ document a pricing policy for all types of related party transactions, with guidelines on “if this is the transaction…..then how to price”, along with case examples capturing different business scenarios.
– Collating prescribed documentation required to support/ substantiates the transfer price.
– Harmonize pricing approach for domestic as well as cross-border transactions.
– Undertake benchmarking analysis.
– Assist in issuance of Accountant’s Report.
– Develop defense files for transfer pricing assessment
o any expenditure in respect of which payment has been made or is to be made to a person referred to in section 40A(2)(b);
o any transaction referred to in section 80A;
o any transfer of goods or services referred to section 80IA(8);
o any business transacted between the assessee and other person as referred to section 80-IA (10);
o any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of section 80-IA(8) or 80IA(10) are applicable; or
o any other transaction as may be prescribed,
AND
where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of Rs. 5 crore.
· Illustrative list of Transactions included:
• Expenditure on buying goods
• Expenditure on procurement of services
• Expenditure on interest payments
• Expenditure on salary, training services, marketing expenses
• Expenditure on purchase of tangible and intangible property
• Director’s remuneration, commission, sitting fees
• Group charges
• Reimbursement expenditure
• Guarantee fee expenditure
· Compliance requirement: To maintain prescribed transfer pricing documentation and file report from an accountant in the prescribed format, as applicable for international transactions amongst associated enterprises.
The above would need to be in place by due date of filing tax return, and would in due course, be assessed through the regular assessment procedure by dedicated transfer pricing officers.
· Failure to comply:
o Penalty of 2 per cent of transaction value for failure to report the transaction or for failure to maintain or furnish documentation.
o Thus, even if one forgets to disclose a transaction of INR 5 crore, which is the minimum threshold for reporting, the penalty is INR 10 lakh.
o This penalty is in addition to penalty of INR 1 lakh prescribed u/s 271BA for non- furnishing of Auditors report u/s 92E.
o Adjustments will attract penalties of 100 to 300 percent of the additional tax payable.
· Calculation of Arm Length Price (ALP)
a) Comparable uncontrolled price method;
b) Resale Price Method;
c) Cost Plus Method;
d) Profit Split Method;
e) Transactional Net margin method;
f) Such other method as prescribed by the board
· Transfer Pricing Consultant’s Role:
– Facilitate building of a framework that helps identify and capture domestic related party transactions.
– Develop/ document a pricing policy for all types of related party transactions, with guidelines on “if this is the transaction…..then how to price”, along with case examples capturing different business scenarios.
– Collating prescribed documentation required to support/ substantiates the transfer price.
– Harmonize pricing approach for domestic as well as cross-border transactions.
– Undertake benchmarking analysis.
– Assist in issuance of Accountant’s Report.
– Develop defense files for transfer pricing assessment