| Compliance requirement | Legislature |
|---|---|
| Transfer pricing Documentation | Indian transfer pricing regulations require that taxpayers to whom transfer pricing regulations apply, to maintain detailed transfer pricing documentation incorporating the following:
- Description of the entities involved in related party international transactions; - Description of international transactions; - Analysis of functions performed / assets involved and risks assumed by the parties involved in related parties transactions; - Analysis of the relevant industry; - Economic analysis for each class of international transaction between related parties. |
| Accountants Report i.e. Form No. 3CEB | Transfer pricing certificate (in Form 3CEB) is required to be prepared and filed along with the return of Income. |
The cost of failure to fully comply with Transfer Pricing regulations could be staggering as the following table shows. Whereas filing an accountant's report is a relatively easy aspect of compliance; others such as satisfactory documentation, satisfaction of the arm's length criterion require expertise and planning.
| Defaults | Quantum of Penalty |
|---|---|
Section 271AA
|
2% of value of each international transaction for each such failure. |
Section 271G
|
2% of value of international transaction for each such failure. |
Section 271BA
|
INR 100,000 |
Section 271(1)(c)
|
100-300% of amount of tax sought to be evaded on concealment of particulars of income or furnishing inaccurate particulars of such income |
Since many of our client companies are part of multinational groups, almost all of those companies require transfer pricing reports, and most require transfer pricing documentation. The clients include manufacturers, exporters, traders, distributors, service providers, project management groups, EPC groups, licensees, franchisees etc. The intra-group transactions are of diverse nature , and include purchase/sale of goods and services, IPR's, brand license, royalties, technology transfer, cost sharing arrangements, deputation of personnel, central services charge/recharge, managements fees, financing transactions and the like. Our team handles various aspects including proactive planning for transfer pricing transactions and the business model, advising on choice of arm's length method and acceptable earnings benchmarks, compliance documentation, assisting with robust inter-company agreements, defending transfer pricing policies in case of litigation etc.
Conduct Fact finding exercise to include:
• Review of inter-company agreements
• Interview of operations personnel from various departments and business lines
• Review of financial information
Evidences may be in the form of:
• Correspondences like e-mails containing proprietary information;
• Minutes, presentations of services provided
• Process manuals, plans, brochures etc., relating to standard operating procedures
• Policy manuals
• Requests made and evidence of solutions received
• Visit records of foreign officials to render services
Analyze the tangible and intangible benefits received such as:
• Increase in sales
• Decrease in specific costs
• Lower level of attrition
• Increase in capacity utilization / efficiency
• Market penetration, etc.
• This should contain all the analysis undertaken and evidences collated
• This should form the first line of defense in case of an audit
