TRANSFER PRICING
REGULATIONS -2013
Transfer pricing until now was applicable to companies
having cross border transactions with their associated enterprises. However
Finance Bill 2012 in the light of the Supreme Court ruling in case of CIT vs.
M/s Glaxo Smithkline Asia (P) Ltd. expanded the ambit of transfer pricing to specified domestic
transaction w.e.f. April 2013.
TRANSFER PRICE means the price or value at which
transactions take place among related parties. It means the price at which
an enterprise transfers physical goods and intangible property and provides
services to associated enterprises.
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The Statutory framework governing taxation laws in India has enacted
Transfer Pricing provisions to provide unambiguous, reasonable, equitable and
fair accountability of the prices charged and profits derived.
The Finance Bill 2012 has brought into the pictures various
changes in the existing transfer pricing provisions such as-
1.
Enlargement of definition of International
Transactions.
2.
Applicability of transfer pricing to certain
domestic transaction.
3.
Availability of +/-3% as a standard deduction
4.
Introduction of Advance Pricing Agreements
5.
Penalty Provision Increased
6.
Other Administrative changes
- Revised Definition of International Transaction Sec
92B.(w.e.f. 01/4/2012)
Transactions between two or more associated
enterprises of which either both or one is a non resident.
Transaction Covered:
-
Purchase / Sale / Lease
-
Provision of Service
-
Leasing or borrowing
-
Guarantees
-
Any debt arising during the course of business
-
Business reorganization or restructuring,
irrespective of its effect on current year’s profits, income, losses or assets
-
Intangible properties
- Applicability of Transfer Pricing Provisions to
Certain Domestic Transaction:
Since the introduction of Transfer pricing provisions in
Finance Act 2001, the applicability was restricted to the ambit of international
transactions. But from April 2013 the regulations have widened their scope by
covering certain specified domestic transactions also.
However the provision will apply only if the aggregate value
of all the transaction entered into by the assessee in a year with its domestic
associated enterprise exceeds Rs. 5 crores.
1.
Any expenditure in respect of which payment is
made or is to be made to a person referred to in Section 40A(2)(b) of the IT
Act;
2.
Any transaction that is referred to in Section
80A;
3.
Any transfer of goods or services referred to in
Section 80-IA(8) i.e. applicable to companies operating as industrial
undertaking or enterprises engaged in infrastructure development.
4.
Any business transacted between the assessee and
the other person as referred to in section 80-IA(10);
5.
Any transaction, referred to in section any
other section under Chapter VI-A or section 10AA, to which provision of
sub-section (8) or sub-section (10) of section 80-IA are applicable
6.
Any other transaction, as may be prescribed by
the board.
- Availability of +/-3 as A Standard Deduction
–Tolerance Limit Band for Arm’s Length Price
Arm’s Length Price means a price which is applied or
proposed to be applied in a transaction between persons other than associated
enterprises, in uncontrolled conditions.
As per Sec 92C the arms length price for an international
transaction can be determined by any of the following methods-
1.
Comparative 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)
6.
Such other method as prescribed by the board
Note: Tolerance Limit Band for Arm’s Length Price was +/-5%
till 31.03.2013. The Finance Bill 2012 has provided an upper ceiling of 3% as
the tolerance range for the determination of ALP w.e.f 01.04.2013
- Introduction of Advance Pricing Agreements Sec 92CC
& 92CD
1.
A person who has undertaken an international
transaction or is contemplating one can enter into an agreement with CBDT.
2.
A person desired to enter into an agreement may
furnish an application in Form No. 3CED alongwith the requisite fee.
3.
The application shall be furnished to Director
General of Income Tax (International
Taxation) in case of unilateral agreement and to the competent authority in
India in case of bilateral of multilateral agreement.
4.
The agreement entered into will be between the
tax payer and the tax authorities for specifying the manner in which the ALP is
to determine in relation to an International Transaction.
5.
The validity of the agreement entered into will
be for consecutively 5 years unless any modification in provisions bearing any
impact on transactions took place.
6.
Modified returns have to be filed by the
assessee based on agreement entered, if the return has already been filed for
the transactions covered in agreement.
7.
Terms of the agreement-
i.
The international transactions covered by the
agreement;
ii.
The agreed transfer pricing methodology, if any;
iii.
Determination of arm’s length price, if any;
iv.
Definition of any relevant term to be used
v.
Critical assumptions;
vi.
The conditions if any other than provided in the
Act or these rules.
- Penalty Provision Increased
The amendments made below will
also apply to Specific Domestic Transaction as well.
Earlier Scope:
Penalty @ 2% on the value of the
international transaction is to levied on the tax payer if the non compliance
amounts to non maintenance of prescribed documents or information (Sec 271 AA)
Further Inclusions: (w.e.f.
01.07.2012)
Extension in the scope of levy of
penalty provisions on the following non compliances-
i.
Failure to report an international transaction
ii.
Maintains or furnishes incorrect
documents/information.
- Other Administrative Changes
IN RELATION TO
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AMENDMENTS
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1. Powers
of the Transfer Pricing Officer
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TPO now can examine even those
international transactions identified by him for which accountant’s report
has not been furnished. (retrospective amendment from 01/06/2012)
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2. Deemed
Escapement of Income
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Non Inclusion/reporting of any
international transaction in the report under sec 92E would amount to Deemed
escapement of income under sec 147. (amendment from 01/07/2012)
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3. Dispute
Resolution Panel
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Matters to be undertaken may also
include the proceedings related to draft assessment orders whether made by
eligible tax payers or not. (retrospective amendment from 01/04/2009)
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Implication of Such Amendments by
Finance Act 2012
The foremost effect of introducing
domestic transactions under the sphere of transfer pricing have included the
following transactions/persons under taxation net-
1.
Transactions entered into by the taxpayers operating in Special
Economic Zones (SEZs)
2.
Taxpayers entering into transactions with
certain related parties specified under section 40A (2)
3.
All the taxpayers claiming profit based
deductions for undertaking specified business activities (under section 80A, 80-IA,
etc.)
4.
Which would further effect the industries operating
in SEZs, infrastructure developers and/or infrastructure operators, telecom
services industries, industrial park developers, power generations or
transmission, etc.
The introduction of
Advance pricing agreements shall also provide an early or no dispute mechanism
between the tax payers and the judiciary of the country, therefore it can taken
as welcome step towards dispute resolution mechanism.
Source: The
Management Accoutant-2013
