102-Transfer Pricing in India- IT Act 1961

8/2/2019 102-Transfer Pricing in India- IT Act 1961

1/96

Click to edit Master subtitle style

3/20/12 CA Siddharth Ranjan

TP Lawsin India

CA Siddharth Ranjan


2/96



Flow ofpresentation:

MeaningRelevant Definitions (Sec 92F)Associated enterprise (Sec 92A)Meaning of international transaction (Sec92B)Computation of arms length price (Sec

92C.)Reference to Transfer Pricing Officer. (sec92 CA)

22CA Siddharth Ranjan


3/96



Flow ofpresentation

Power of Board to make safe harbour rules (Sec 92

CB)Maintenance and keeping of information anddocument by persons entering into an internationaltransaction. (Sec 92D)

Report from an accountant to be furnished by personsentering into international transaction. (Sec 92 E)Penalties : Sec 271 (1) (c), Sec 271 AA, Sec 271 BA,Sec 271 G

Time limit s



4/96



Meaning

Commercial transactions between thedifferent parts of the multinationalgroups may not be subject to the samemarket forces shaping relations

between the two independent firms.One party transfers to another goods orservices, for a price. That price isknown as transfer price



5/96

More conventionally

Though the expression transferpricing would cover a host oftransactions; generally it refers to prices

of transactions between associatedenterprises which may take place underconditions differing from those takingplace between independent enterprises.


6/96

More conventionally

It refers to the value attached totransfers of goods, services andtechnology between related entities.

It also refers to the value attached totransfers between unrelated partieswhich are controlled by a common

entity.


7/96

An example:


8/96

Analysis:

Had A sold it direct, it would have made a profit of 300rupees.

By routing it through B, it restricted it to 100 rupees,permitting B to appropriate the balance.

The transaction between A and B is arranged and not governedby market forces.

The profit of 200 rupees is, thereby, shifted to the country ofB.

The goods is transferred on a price (transfer price) which isarbitrary or dictated (200 hundred rupees), but not on themarket price (400 rupees).


9/96

Effects of transfer pricing:

parent company or a specific subsidiarytends to produce insufficient taxable incomeor excessive loss on a transaction.

Profits accruing to the parent can beincreased by setting high transfer prices tosiphon profits from subsidiaries domiciledin high tax countries, and low transfer prices

to move profits to subsidiaries located inlow tax jurisdiction.


10/96

Routing through Taxheavens: A group which manufactures products in high tax

countries may decide to sell them at low profits toits affiliate sales company based in a tax havencountry.

That company would in turn sell the product at anarm's length price and the resulting (inflated) profitwould be subject to little or no tax in that country.

The result is revenue loss and also a drain on

foreign exchange reserves in the country wheremanufacturing takes place.


11/96

Vs


12/96

Relevant Definitions (Sec92 F)

Arms length price

Enterprise Permanent

establishment (PE) Transaction


13/96

92F (ii) arms length pricemeans a price which is

applied or proposed to beapplied in a transaction

between persons other thanassociated enterprises, inuncontrolled conditions;

Relevant Definitions (Sec 92 F)Armslength

price


14/96

92F (iii) enterprise means a person (including a permanent establishmentof such person) who is, or has been, or is proposed to be, engaged in anyactivity, relating to the production, storage, supply, distribution, acquisition orcontrol of articles or goods, or know-how, patents, copyrights, trade-marks,licences, franchises or any other business or commercial rights of similar nature,

or any data, documentation, drawing or specification relating to any patent,invention, model, design, secret formula or process, of which the otherenterprise is the owner or in respect of which the other enterprise has exclusiverights, or the provision of services of any kind, or in carrying out any work in

pursuance of a contract, or in investment, or providing loan or in the business of

acquiring, holding, underwriting or dealing with shares, debentures or othersecurities of any other body corporate, whether such activity or business iscarried on, directly or through one or more of its units or divisions orsubsidiaries, or whether such unit or division or subsidiary is located at the same

place where the enterprise is located or at a different place or places;

Relevant Definitions (Sec 92 F)Enterprise


15/96

The above definition contains 186 words!

Essentially means what we generally understand as an enterprise!

Enterprise (n): A business organization

Relevant Definitions (Sec 92 F)Enterprise

C A- T,Cat; Cat

ManeyBilli!

P


16/96

92F (iiia) permanent establishment,referred to in clause (iii), includes a fixed

place of business through which thebusiness of the enterprise is wholly or partlycarried on;

Relevant Definitions (Sec 92 F)

Permanentestablishment(PE)

In international parlance:

i


17/96

92F (v) transaction includes anarrangement, understanding or action inconcert,

(A) whether or not sucharrangement, understanding or action isformal or in writing; or

(B) whether or not such

arrangement, understanding or action isintended to be enforceable by legalproceeding.

Relevant Definitions (Sec 92 F)

Transaction

S 92A (1)


18/96

92A. (1) For the purposes of this sectionand sections 92, 92B, 92C, 92D, 92E and92F, associated enterprise, in relation to

another enterprise, means an enterprise (a) which participates, directly or

indirectly, or through one or more

intermediaries, in the management orcontrol or capital of the other enterprise;or

Meaning of associated enterprise. (Sec 92A).

Sec 92A. (1)

S 92A (1)


19/96

92A. (1) (b) in respect of which one or morepersons who participate, directly orindirectly, or through one or more

intermediaries, in its management orcontrol or capital, are the same personswho participate, directly or indirectly, or

through one or more intermediaries, inthe management orcontrol or capital ofthe other enterprise.


Sec 92A. (1)

S 92A (2)


20/96

For the purposes of sub-section (1),two enterprises shall be deemed to beassociated enterprises if, at any timeduring the previous year,

(a) one enterprise holds, directlyor indirectly, shares carrying not lessthan twenty-six per cent of thevoting power in the other enterprise;or


Sec 92A. (2)

S 92A (2)


21/96

(b) any person or enterpriseholds, directly or indirectly,

shares carrying not less thantwenty-six per cent of thevoting powerin each of suchenterprises; or


Sec 92A. (2)

S 92A (2)


22/96

(c) a loan advancedby oneenterprise to the other

enterprise constitutes not lessthan fifty-one per cent ofthe book value of the totalassets of the other enterprise;or


Sec 92A. (2)

S 92A (2)


23/96

(d) one enterpriseguarantees not lessthan ten per cent of thetotal borrowings of the

other enterprise; or


Sec 92A. (2)

S 92A (2)


24/96

(e) more than half of theboard of directors or members

of the governing board, or oneor more executive directors orexecutive members of the

governing board of oneenterprise, are appointed bythe other enterprise; or


Sec 92A. (2)

S 92A (2)


25/96

(f) more than half of thedirectors or members of the

governing board, or one or moreof the executive directors ormembers of the governing board,

of each of the two enterprises areappointed by the same person or

persons; or


Sec 92A. (2)

Sec 92A (2)


26/96

(g) the manufacture or processing of goods orarticles or business carried out by one enterprise iswholly dependent on the use of know-how, patents,

copyrights, trade-marks, licences, franchises or anyother business or commercial rights of similarnature, or any data, documentation, drawing orspecification relating to any patent, invention,model, design, secret formula or process, of whichthe other enterprise is the owner or in respect ofwhich the other enterprise has exclusive rights; or


Sec 92A. (2)

Sec 92A (2)


27/96

(h) ninety per cent or more of the rawmaterials and consumables required forthe manufacture or processing of goods orarticles carried out by one enterprise, aresupplied by the other enterprise, or bypersons specified by the other enterprise, andthe prices and other conditions relating to thesupply are influenced by such otherenterprise; or


Sec 92A. (2)

Sec 92A (2)


28/96

(i) the goods or articlesmanufactured or processed by one

enterprise, are sold to the otherenterprise or to persons specifiedby the other enterprise, and the

prices and other conditions relatingthereto are influenced by suchother enterprise; or


Sec 92A. (2)


29/96

Sec 92A (2)


30/96

(k) where one enterprise iscontrolled by a Hindu undividedfamily, the other enterprise iscontrolled by a member of suchHindu undivided family or by arelative of a member of such Hindu

undivided family or jointly by suchmember and his relative; or


Sec 92A. (2)

Sec 92A (2)


31/96

(l) where one enterprise is afirm, association of persons or

body of individuals, the otherenterprise holds not less thanten per cent interest in such

firm, association of persons orbody of individuals; or


Sec 92A. (2)

Sec 92A (2)


32/96

(m) there exists betweenthe two enterprises, anyrelationship of mutualinterest, as may be

prescribed.


Sec 92A. (2)


33/96

Sec 92 B (2)


34/96

International transaction

Sec 92 (2) A transaction entered into by anenterprise with a person other than an associatedenterprise shall, for the purposes of sub-section (1),

be deemed to be a transaction entered into betweentwo associated enterprises, if there exists a prioragreement in relation to the relevant transactionbetween such other person and the associatedenterprise, or the terms of the relevant transactionare determined in substance between such otherperson and the associated enterprise.

Sec 92 B (2)

Sec 92 C (1)


35/96

Computation of armslength price (Sec 92C.)

92C. (1) The arms length price in relation to aninternational transaction shall be determined by anyof the following methods, being the most

appropriate method, having regard to the nature oftransaction or class of transaction or class ofassociated persons or functions performed by suchpersons or such other relevant factors as the Boardmay prescribe, namely :

Sec 92 C (1)

Sec 92 C (1)


36/96

Computation of armslength price (Sec 92C.)

92C. (1) Methods (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 may be prescribed by the

Board.

Sec 92 C (1)


37/96

OECD TPG-Transfer PricingGuidelines

OECD TPG contains five transfer pricing methods:

three traditional transaction methods:

1. comparable uncontrolled price method (CUP method),

2. resale price method, and

3. cost plus method;

and two transactional profit methods:

1.

transactional net margin method (TNMM) and2. transactional profit split method.


38/96

OECD TPG

These five transfer pricing methodsrepresent the international consensus onthe manner of applying the arms length

principle.In order to minimise the risk of doubletaxation, countries are encouraged tomake available all the five transferpricing methods in their domestic rulesand to apply them in accordance withthe TPG.

Sec 92 C (1) (a)


39/96

(a) ComparableUncontrolled Price method;

The CUP method compares the price charged for propertyor services transferred in a controlled transaction to the pricecharged for property or services transferred in a comparableuncontrolled transaction in comparable circumstances. Ifthere is any difference between the two prices, this mayindicate that the conditions of the commercial and financialrelations of the associated enterprises are not arms length,and that the price in the uncontrolled transaction may need to

be substituted for the price in the controlled transaction.

Sec 92 C (1) (a)- CUP

Sec 92 C (1) (a)


40/96

CUP method be appliedwhen:

None of the differences (if any)between the transactions beingcompared or between the enterprises

undertaking those transactions couldmaterially affect the price in the openmarket; or

Reasonably accurate adjustments canbe made to eliminate the materialeffects of such differences.

Sec 92 C (1) (a)- CUP

Sec 92 C (1) (a)


41/96

CUP method is most helpful for :

i) sales of commodities traded on a market,subject to the controlled transaction andcomparable uncontrolled transaction(s)taking place in comparable circumstances,including at the same level of thecommercial chain (e.g. sale to a secondarymanufacturer, to a distributor, to a retailer,etc.), and

ii) some common financial transactions,such as the lending of money.

Sec 92 C (1) (a)- CUP

Sec 92 C (1) (b)


42/96

(b) resale price method;

Sec 92 C (1) (b)-RPM

Sec 92 C (1) (b)


43/96

Resale price method

The resale price method begins with the price at which a product thathas been purchased from an associated enterprise is resold to anindependent enterprise. This price (the resale price) is then reduced byan appropriate gross margin (the resale price margin), determined by

reference to gross margins in comparable uncontrolled transactions,representing the amount out of which the reseller would seek to cover itsselling and other operating expenses and, in light of the functions

performed (taking into account assets used and risks assumed), make anappropriate profit. What is left after subtracting the gross margin can be

regarded, after adjustment for other costs associated with the purchase ofthe product (e.g. customs duties), as an arms length price for theoriginal transfer of property between the associated enterprises.

Sec 92 C (1) (b)-RPM


44/96

Thus, in a resale price method, theresale price margin (i.e. the grossmargin) that the reseller earns from the

controlled transaction is compared withthe gross margin from comparableuncontrolled transactions.


45/96

This method is probably most useful where it is applied tosales and marketing operations such as those typically carriedout by a distributor. In some circumstances, the resale pricemargin of the reseller in the controlled transaction may bedetermined by reference to the resale price margin that thesame reseller earns on items purchased and sold incomparable uncontrolled transactions (an internalcomparable). In other circumstances (especially wherereliable internal comparables are not available), the resale

price margin may be determined by reference to the resaleprice margin earned by independent enterprises in

comparable uncontrolled transactions (externalcomparables).

Sec 92 C (1) (c)


46/96

(c) Cost Plus Method;

The cost plus method begins with the costs incurredby the supplier of property or services in acontrolled transaction for property transferred or

services provided to an associated enterprise. Anappropriate mark-up, determined by reference to themark-up earned by suppliers in comparableuncontrolled transactions, is then added to these

costs, to make an appropriate profit in light of thefunctions performed and the market conditions.

( ) ( )-CPM

Sec 92 C (1) (c)


47/96

(c) Cost Plus Method

Such arms length mark-up may be determined byreference to the mark-up that the same supplierearns in comparable uncontrolled transactions (aninternal comparable), or by reference to the mark

up that would have been earned in comparabletransactions by an independent enterprise (externalcomparable). In general, the mark-up in a cost plus

method will be computed after direct and indirectcosts of production or supply, but before theoperating expenses of the enterprise (e.g. overheadexpenses).

( ) ( )-CPM

Sec 92 C (1) (c)


48/96

Thus, in a cost plus method, themark-up on costs that themanufacturer or service provider

earns from the controlled transactionis compared with the mark-up oncosts from comparable uncontrolled

transactions.

( ) ( )-CPM

CPM i f l

Sec 92 C (1) (c)


49/96

CPM is most usefulwhere:

i) goods are sold by a manufacturer thatdoes not contribute valuable uniqueintangible assets or assume unusual risks inthe controlled transaction, such as may be

the case under a contract or tollmanufacturing arrangement; or

ii) the controlled transaction is the provisionof services for which the provider does notcontribute any valuable unique intangibleassets or assume unusual risks.

( ) ( )-CPM

Sec 92 C (1) (d)


50/96

(d) Profit split method;

( ) ( )-PSM

Th T ti l P fit


51/96

The Transactional ProfitSplit Method

The transactional profit split method first identifies thecombined profits to be split for the associated enterprises fromthe controlled transactions in which the associated enterprisesare engaged. In some cases, the combined profits will be the total

profits from the controlled transactions in question. In othercases, the combined profits will be a residual profit intended torepresent the profit that cannot readily be assigned to one of the

parties from the application of another transfer pricing method,

such as the profit arising from valuable, unique intangibles.Note that the combined profits may be a loss in somecircumstances.


52/96

Profit split method

The transactional profit split method then splits thecombined profits between the associated enterprises onan economically valid basis that approximates thedivision of profits that would have been anticipated

between independent enterprises. Where possible, thiseconomically valid basis may be supported byindependent market data (e.g. division of profitsobserved in uncontrolled joint-venture agreements).Most often, however, it will be supported by internal

data.

( ) t ti l t

Sec 92 C (1) (e)


53/96

(e) transactional netmargin method

-TNMM

Sec 92 C (1) (e)


54/96

TNMM:

The transactional net margin method (TNMM)examines a net profit indicator, i.e. a ratio of netprofit relative to an appropriate base (e.g. costs,

sales, assets), that a taxpayer realises from acontrolled transaction (or from transactions thatare appropriate to aggregate) with the net profit

earned in comparable uncontrolled transactions.

-TNMM


55/96

Sec 92 C (1) (e)


56/96

TNMM: Most often, the net profit indicator that is tested

in a TNMM is the operating profit (beforeinterest, extraordinary items and income taxes).

In general, it is observed that in applying aTNMM, the net profit is weighted to costs formanufacturing and service activities; to salesfor sales activities; and to assets for asset-

intensive activities.

-TNMM

Th l d fi i l i diSec 92 C (1) (e)


57/96

The selected financial indicatorshould be one that:

(a). Reflects the value of thefunctions performed by the tested

party (i.e. the party to thecontrolled transaction for which afinancial indicator is tested), takingaccount of its assets and risks;

-TNMM

Th l t d fi i l i di tSec 92 C (1) (e)


58/96


(b). Is reasonably independent fromtransfer pricing formulation, i.e. itshould be based on objective data (suchas sales to unrelated parties), not on datarelating to the remuneration of

controlled transactions (such as sales toassociated enterprises); and

-TNMM

Th l t d fi i l i di tSec 92 C (1) (e)


59/96


(c). Is capable of being measured ina reasonably reliable and consistent

manner at the level of thecontrolled transaction and of thecomparable uncontrolledtransaction(s).

-TNMM

The most appropriateSec 92 C (2)


60/96

The most appropriatemethod

92C(2) The mostappropriate method referred

to in sub-section (1) shall beapplied, for determinationof arms length price, in the

manner as may beprescribed:


61/96

Sec 92 C (2)


62/96

Proviso-2

Provided further that if the variationbetween the arms length price sodetermined and price at which the

international transaction has actuallybeen undertaken does not exceed fiveper cent of the latter, the price at whichthe international transaction has actually

been undertaken shall be deemed to bethe arms length price.

Arms length price to beSec 92 C (3)


63/96

Arms length price to bedetermined by AO

(3) Where during the course of anyproceeding for the assessment of income,the Assessing Officer is, on the basis of

material or information or document inhis possession, of the opinion that

(a) the price charged or paid in aninternational transaction has not beendetermined in accordance with sub-sections (1) and (2); or



64/96


(b) any information and documentrelating to an international transactionhave not been kept and maintained by the

assessee in accordance with theprovisions contained in sub-section (1) ofsection 92D and the rules made in thisbehalf; or

(c)the information or data used incomputation of the arms length price isnot reliable or correct; or



65/96


(d)the assessee has failed to furnish, within thespecified time, any information or documentwhich he was required to furnish by a noticeissued under sub-section (3) of section 92D,

the Assessing Officer may proceed todetermine the arms length price in relation tothe said international transaction in accordance

with sub-sections (1) and (2), on the basis ofsuch material or information or documentavailable with him:

Sec 92 C (3)


66/96

Proviso (natural justice)

Provided that an opportunity shall begiven by the Assessing Officer byserving a notice calling upon the

assessee to show cause, on a date andtime to be specified in the notice, whythe arms length price should not be so

determined on the basis of material orinformation or document in the

possession of the Assessing Officer.

Re computation of totalSec 92 C (4)


67/96

Re-computation of totalincome by A.O.

Sec 92 C(4) Where an arms length priceis determined by the Assessing Officerunder sub-section (3), the Assessing

Officer may compute the total income ofthe assessee having regard to the armslength price so determined:

Reference to Transfer Pricing

Sec 92 CA (1)


68/96

Reference to Transfer PricingOfficer. (Sec 92 CA)

92CA. (1) Where any person, being theassessee, has entered into an internationaltransaction in any previous year, and theAssessing Officer considers it necessary or

expedient so to do, he may, with the previousapproval of the Commissioner, refer thecomputation of the arms length price inrelation to the said international transaction

under section 92C to the Transfer PricingOfficer.

Reference to Transfer PricingSec 92 CA (2)


69/96


92CA. (2) Where a reference is made undersub-section (1), the Transfer Pricing Officershall serve a notice on the assessee requiringhim to produce or cause to be produced on a

date to be specified therein, any evidence onwhich the assessee may rely in support of thecomputation made by him of the arms length

price in relation to the international transaction

referred to in sub-section (1).



70/96


92CA. (3) On the date specified in the notice under sub-section(2), or as soon thereafter as may be, after hearing such evidenceas the assessee may produce, including any information ordocuments referred to in sub-section (3) of section 92D and after

considering such evidence as the Transfer Pricing Officer mayrequire on any specified points and after taking into account allrelevant materials which he has gathered, the Transfer PricingOfficer shall, by order in writing, determine the arms length

price in relation to the international transaction in accordancewith sub-section (3) of section 92C and send a copy of his orderto the Assessing Officer and to the assessee.



71/96


92CA. (4) On receipt of the orderunder sub-section (3), the AssessingOfficer shall proceed to compute the

total income of the assessee undersub-section (4) of section 92C inconformity with the arms length

price as so determined by theTransfer Pricing Officer.

Explanation added to Sec 92Sec 92 CA


72/96

Explanation added to Sec 92CA)

Explanation.For the purposes of thissection, Transfer Pricing Officer means aJoint Commissioner or DeputyCommissioner or Assistant Commissioner

authorised by the Board to perform all orany of the functions of an Assessing Officerspecified in sections 92C and 92D in respectof any person or class of persons.]

Power of Board to make safe

Sec 92 CB


73/96

Power of Board to make safeharbour rules (Sec 92 CB)

92CB. (1) The determination of arms lengthprice under section 92C or section 92CA shallbe subject to safe harbour rules.

(2) The Board may, for the purposes of sub-section (1), make rules for safe harbour.

Explanation.For the purposes of this section,safe harbour means circumstances in whichthe income-tax authorities shall accept thetransfer price declared by the assessee.

Maintenance and keeping of information andSec 92 D


74/96

p gdocument by persons entering into aninternational transaction. (Sec 92D)

Sec 92D(1) Every person who has entered intoan international transaction shall keep andmaintain such information and document inrespect thereof, as may be prescribed.

Sec 92D(2) Without prejudice to theprovisions contained in sub-section (1), theBoard may prescribe the period for which theinformation and document shall be kept and

maintained under that sub-section.

Maintenance and keeping of information and

Sec 92 D(3)


75/96

p gdocument by persons entering into aninternational transaction. (Sec 92D)

Sec 92D (3) The Assessing Officer or theCommissioner (Appeals) may, in the courseof any proceeding under this Act, requireany person who has entered into an

international transaction to furnish anyinformation or document in respect thereof,as may be prescribed under sub-section (1),within a period of thirty days from the

date of receipt of a notice issued in thisregard :

R f CASec 92 E


76/96

Report from a CA

Sec 92E. Every person who has enteredinto an international transaction duringa previous year shall obtain a report

from an accountant and furnish suchreport on or before the specified date inthe prescribed form duly signed andverified in the prescribed manner by

such accountant and setting forth suchparticulars as may be prescribed.

P l iPenalty


77/96

Penalties:

Penalty provisions are contained in: Sec 271 (1) (c) (Concealment of income) Sec 271AA (failure to keep and maintain

information and documents ) Sec 271 BA (failure to furnish report under

section 92E) Sec 271 G (for failure to furnish information

or document under section 92D)

Penalty u/s 271 (1) (c) (ForSec 271 (1) (c)


78/96

Penalty u/s 271 (1) (c) (Forconcealment of income)

Sec 271(1) If the Assessing Officer or theCommissioner (Appeals) or the Commissionerin the course of any proceedings under thisAct, is satisfied that any person

(c) has concealed the particulars of his incomeor furnished inaccurate particulars of suchincome,

he may direct that such person shall pay byway of penalty,

Penalty u/s 271 (1) (c) (ForSec 271 (1) (c)


79/96

Penalty u/s 271 (1) (c) (Forconcealment of income)

(iii) in the cases referred to in clause (c)or clause (d), in addition to tax, if any,payable by him, a sum which shall not

be less than, but which shall not exceedthree times, the amount of tax sought tobe evaded by reason of the concealmentof particulars of his income or fringe

benefits or the furnishing of inaccurateparticulars of such income or fringebenefits.

Penalty u/s 271 AA (failure to keep and

Sec 271 AA


80/96

Penalty u/s 271 AA (failure to keep andmaintain information and documents )

Sec 271AA. Without prejudice to theprovisions of section 271, if any person fails tokeep and maintain any such information anddocument as required by sub-section (1) or

sub-section (2) of section 92D, the AssessingOfficer or Commissioner (Appeals) may directthat such person shall pay, by way of penalty, asum equal to two per cent of the value of

each international transaction entered into bysuch person.]

Penalty u/s 271 BA (failure to

Sec 271 BA


81/96

furnish report under section 92E)

Sec 271BA. If any person failsto furnish a report from anaccountant as required bysection 92E, the AssessingOfficer may direct that such

person shall pay, by way ofpenalty, a sum ofone hundredthousand rupees.

Penalty u/s 271 G (for failure to furnish

Sec 271 G


82/96

information or document under section92D)

Sec 271G If any person who has enteredinto an international transaction fails to furnishany such information or document as required

by sub-section (3) of section 92D, the

Assessing Officer or the Commissioner(Appeals) may direct that such person shall

pay, by way of penalty, a sum equal to two percent of the value of the international

transaction for each such failure.

Sec 276 C: willful attempt to evade tax


83/96

Sec 276 C: willful attempt to evade taxetc.

Amout soughtto be evaded

exceeds Rs

100,000

RI of 6 monthsto 7 years &

Fine

In any other

case

RI of 3 months

to 3 years &Fine

Sec 271 D: Failure to produce accounts


84/96

Sec 271 D: Failure to produce accountsand documents

In any case RI up to 1

year & Fine@ 4/- to 10/-

Per Day

Sec 277: False statement in verification


85/96

Sec 277: False statement in verification,etc.

Amout soughtto be evaded

exceeds Rs

100,000

RI of 6 monthsto 7 years &

Fine

In any other

case

RI of 3 months

to 3 years &Fine

ff b i

Sec 278 B


86/96

Offence by companies

Directors would be responsible.

Glossary of a few otherGlossary:


87/96

G oss y o ew o euseful terms:

Glossary of a few otherGlossary:


88/96

yuseful terms:

Advance PricingGlossary:


89/96

gArrangement (APA)

APA is an agreement that determines in advance an appropriate set ofcriteria (method, appropriate adjustments thereto, etc) for internationaltransactions for the determination of the transfer prices over a period oftime. APA is binding on both the taxpayer and the tax authority.

APA's are becoming popular in many countries as they provide tax

certainty, reduce compliance cost and resolve complex transfer pricingissues. The countries that have adopted this process include India'smajor trading partners and investors including USA, UK, Canada,Germany, China, Japan and Korea. For resolving economic double

taxation, it will be also necessary to strengthen the procedures andpractices under the existing Mutual Agreement Procedure.

DRP: dispute resolution

Glossary:


90/96

ppanel

DRP allows foreign taxpayers to sort out their tax disputes ina faster and cost effective manner.

DRPs could be resorted to only by a foreign company forresolving TP dispute .

A foreign company facing a dispute pertaining to corporatetax in India along with a transfer pricing would also be ableto avail this window.

There are eight DRPs across the country in eight metrosincluding Delhi, Mumbai, Chennai, Kolkata, Bangalore, Puneand Hyderabad

Way forward:


91/96



DTC should bring infurther rationalizationThe Safe Harbourrules should be

brought into placecovering a goodnumber of industriesStandardized

documentationrequirements in linewith OECD/ ICCpronouncements-9191CA Siddharth Ranjan

Way forward:


92/96



Mechanism for APAs

should be promulgatedand a genuine effortsneed to be made tobring certainty to Taxprovisions.Penality provisonsshould be harmonisedwith International bestpractices.More quicker disputeresolution mechanisms

for all assessees9292CA Siddharth Ranjan

Way forward:


93/96



Risk based

Departmental Auditshould be further finetuned.Domestic transactionsshould also be dulycovered under similarprovisions, withoutmaking life difficult forsmall entrepreneurs.


References


94/96



http://law.incometaxindia.go.

Law of Transfer Pricingin India By D P MittalPulished by Taxmann

publications Pvt Ltd.


References
http://law.incometaxindia.gov.in/DIT/inttpcont.aspxhttp://law.incometaxindia.gov.in/DIT/inttpcont.aspx


95/96



Articles

.



96/96


Documents

102-Transfer Pricing in India- IT Act 1961