Transfer Pricing Guidelines

Transfer Pricing Guidelines

Legal Position	The Finance Act 2001 introduced w.e.f. AY 2002-2003, detailed Transfer Pricing Regulations vide Section 92 to 92F of the Income Tax Act, 1961. The Central Board of Direct Taxes (CBDT) has come out with Transfer Pricing Rules –Rule 10A to Rule 10E.
Applicability	Transfer  Pricing provisions are applicable based on some crieteria : 1.       There must be an international transaction, 2.       Such international transaction must be between two or more associated enterprises, either or both of whom are non resident/s.
Pricing Method Allowed	Arm’s Length Price is to be determined by adopting any one of the following methods: 1.       Comparable Uncontrolled Price Method (CUP) 2.       Resale Price Method (RPM) 3.       Cost Plus Method (CPM) 4.       Profit Split Method (PSM) 5.       Transactional Net Margin Method (TNMM) or any other method prescribed by the CBDT
Documentation Required	13 Different types of documents are required to be maintained. These are : 1.       Enterprise-wise documents- Description of the enterprise, Relationship with other associated enterprises, Nature of business carried out. 2.       Transaction-Specific documents- Information regarding each transaction, Description of the functions performed, Assets employed and risks assumed by each party to the transaction, Economic and Market Analysis etc. 3.       Computation related documents- Describe in details the method considered, Actual working assumptions, policies etc., Adjustment made to transfer price, Any other relevant information, data, documents relied for determination of Arm’s Length Price etc. A Report form a Chartered Accountant in the prescribed form (3CEB Report) giving details of transactions is required to be submitted within a specific time limit.
Penalty	1.       Penalty for concealment of income or furnishing inaccurate particulars thereof -100% to 300% of the tax sought to be evaded. 2.       Penalty for failure to keep and maintain information and documents in respect of International Transaction – 2% of the value of each international transaction. 3.       Penalty for failure to furnish report under Section 92E – Rs. 100000/-