With incremental adoption of globalization and rapid growth in several multi-national companies trying to establish their operation facilities, production houses in India, taxation in India is being aligned with global tax practices.
Therefore, it is incredibly important for every business entity to develop a thorough understanding of the transfer pricing regulations applicable on an Indian registered business entity, to plan the way for a business as well as its tax structure.
What is Transfer Pricing?
Transfer pricing generally refers to the price(s) of transactions controlled and practiced between associated enterprises. Such pricing decisions may be taken under conditions differing from independent enterprises.
Transfer pricing is the value attached to transfers of goods, services, and technology between related entities located in different territories. It also refers to the value attached to transfers between unrelated parties which are controlled by a common entity.
In other words, Profits accruing to the parent company can be increased by setting high transfer prices to siphon off profits from subsidiaries registered and operating in high tax countries and low transfer prices to divert profits to subsidiaries located in low-tax jurisdictions.
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