About This Plan
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.
Why is it mandatory for related parties to document their transfer pricing?
Finance Act, 1994 had introduced
section 92A to 92F under the Income Tax Act. This separate code on
transfer pricing under Sections 92 to 92F of the Indian Income Tax Act,
1961 covers intra-group cross-border transactions which are applicable
from 1st April 2001, and specified domestic transactions which are
applicable from 1st April 2012.
The Income Tax Act, 1961 now prescribes
that income arising from international transactions or specified
domestic transactions between associated enterprises should be computed
having regard to the arm’s-length price.
It has been notified that any allowance
for an expenditure or interest or allocation of any cost or expense
arising from an international transaction or specified domestic
transaction also shall be determined having regard to the arm’s-length
price.
More Info : Transfer Pricing Advisory | Company Registration Online