Transfer Pricing India CS GAURAV +919990694230

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Transfer Pricing

INDIA /INTERNATIONALCSGAURAV+919990694230

[email protected]

Friday,

November

07, 2014

www.csgauravsharma.com



Revenue Profit

Capital GainRoyalty

Inter Company

Control System

cost centresrevenue centres

profit/Investment centre

Intra Company

Internal(Within the country)

Non-Related:

Profit/Dividend/RoyaltyForex Fluctuations

Accounting

Related

Profit/Dividend/RoyaltyTransfer Pricing

Forex/Accounting

Inter Comapny

Control Systems

Forex FluctuationsAccounting

Transfer Pricing

Intra Company

External(outside the country)

Transactions

Friday,

November

07, 2014




Transfer Price: What and

Why? TP means the value or price at which

transactions take place amongstrelated parties.

TP are the prices at which anenterprise transfers physical goods andintangible property and providesservices to associated enterprises

TP gain significance because these canbe used by the controlling party totheir advantage to minimise taxincidence.

Friday,

November

07, 2014




Transfer Price: What and

Why? Approximately 60% of the total transactions across the

world are between related parties.

If the transactions are across different tax jurisdictions,

where tax rates are different, shifting is beneficial.

Friday,

November

07, 2014




Factors Affecting Transfer

Pricing Internal factors: Performance Measurement and

Evaluation

External Factors:

Accounting Standard

Income Tax

Custom Duty

Currency Fluctuations

Risk of Expropriation

Friday,

November

07, 2014




Transfer Price Regulations

International

OECD formulated

“Guidelines on transfer

pricing”. They serve asgenerally accepted

practices by the tax

authorities

India

The Finance Act 2001

introduced the detailed

TPR w.e.f. 1st April 2001

The Income Tax Act

AS-18

Other Relevant Acts

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November

07, 2014




Accounting Standard 18

Requires disclosure of ‘any elements of the related partytransactions necessary for an understanding of the

financial statements’.

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November

07, 2014




Related Parties

Control by ownership

50% of the voting right

Control over composition of board of directors

Power to appoint or remove the directors

Control of substantial interest

20% or more interest in the voting power

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November

07, 2014




AS-18 and Transactions

Purchase and sale of goods;

Rendering or receiving services;

Agency arrangements;

Leasing arrangements;

Transfer of research and development;

Licence aggrements;

Finance

Guarantees and collaterals;

Management contracts.Friday,

November

07, 2014




Income Tax Act and TP

Finance Act 2001 substituted the old section of 92 of the ITA bysections 92,92A to 92 F.

These sections are the backbone of Indian TPR.

These sections define the meaning of related parties, internationaltransactions, pricing methodologies etc.

Friday,

November

07, 2014




TPR: Some Important

Concepts Income/Expenses/Cost arising from an international

transaction shall be computed having regard to

arm’s length price (ALP). ALP provisions can be

applied if it leads to

decrease in taxable incomeor increase in losses.

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November

07, 2014




Associate Enterprise: 92A

Direct Control/Control throughintermediary

Holding 26% of voting power

Advance of not less than 51% of the totalassets of borrowing company.

Guarantees not less than 10% on behalf ofborrower

Appointment of more than 50% of the BoD Dependence for 90% or more of the total

raw material or other consumables

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November

07, 2014




International Transactions:

92B Transaction between two or more AE of which either

both or anyone is a non-resident.

Transactions:

Purchase/Sale/Lease

Provision of service

Lending or borrowing

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November

07, 2014




Arm’s Length Price

Price which two independent firms would agree on.

Price which is generally charged in a transaction

between persons other than associated enterprises.

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November

07, 2014




Arm’s Length Price: 92C

Comparable uncontrolled price method

Resale price method

Cost plus method Profit split method

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November

07, 2014




Comparable uncontrolled

price method CUP method compares the price transferred in a

controlled transaction to the price charged in a

comparable un-controlled transaction.

CUP method is the most direct and reliable way to applythe arm’s length principle.

Friday,

November

07, 2014




Resale price method

The resale price method begins with the price at which

a product is resold to an independent enterprise (IE)by

an associate enterprise.

X sold to AE at Rs. 1000 (profit: 300)

AE sold to an IE at Rs. 2000

(profit of Rs. 500 for relevant IE)

Arms length price = 2000 - 500 = 1500

Friday,

November

07, 2014




Profit Split Method

PSM is used when transactions are inter-related and is

not possible to evaluate separately.

PSM first identifies the profit to be split for the AE. The

profit so determined is split between the AE on thebasis of the functions performed/assets/CE

Friday,

November

07, 2014




Cost Plus Method

In CP method, first the cost incurred is determined. An

appropriate cost plus mark-up is then added to the cost

to arrive at an appropriate profit. The resultant figure is

the arm’s length price.

Friday,

November

07, 2014




Some Transactions subject to ALP

• Purchase at little or no

cost.

•Payment for servicesnever rendered.

• Sales below MP/

Purchase above MP

• Interest free

borrowings

• Exchanging property

• Selling of real estate at

a price different fromMP

• Use of trade names or

patents at exorbitant

rates even after their

expiry.

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November

07, 2014




Some Cases

• Kinetic Honda Motors

– Collaborator: Honda Motor Co. Ltd Japan and

their Subsidiary Honda Trading Corpn. Japan

• Hero Honda Motors Ltd.

– Parent: Honda Motor Co. Ltd Japan and their

Subsidiary Honda Trading Corpn. Japan

Friday,

November

07, 2014




Some Cases

• Peico Electronics & Electricals Ltd.

– Parent: Phillips Netherlands and its subsidiaries

• Asea Brown Boveri

– Parent: ABB Switzerland and its subsidiaries

• Videocon Group

– Collaborators: Toshiba Co., Mitsubishi Co

Friday,

November

07, 2014




Transfer Pricing

INDIA /INTERNATIONAL

CSGAURAV+919990694230

[email protected]

Friday,

November

07, 2014


Documents

Transfer Pricing India CS GAURAV +919990694230