Transfer pricing provisions in India are applicable to two types of transactions (1) international transactions and (2) specified domestic transactions. The Indian laws prescribe usage arm's length pricing (ALP) alongwith five globally accepted methods to benchmark such transactions. Taxpayers are required to prepare year-on-year transfer pricing documentation and file accountant's report. With the advancing globalization, transfer pricing has become one of the focus area for tax authorities and also one of the prime reason for long pending litigations. However, the government has also introduced various new measures like arm's length 'range' approach, safe harbour rules, advanced pricing agreement (APA), etc to reduce transfer pricing litigations.
When are transfer pricing provisions applicable ?
Transfer pricing provisions are applicable on taxpayers entering into direct or indirect business transactions with their overseas group entities (associated enterprise). Apart from that, the provisions are also applicable to certain specified kind of domestic transactions which tentamount tax arbirage benefits.
What kind of compliances are required under transfer pricing provisions in India ?
Below two kind of compliances are required under Indian transfer pricing laws:
- Getting annual report from a Chartered Accountant (CA) in Form No. 3CEB, and
- Preparing transfer pricing documentation.
Is it mandatory to prepare transfer pricing documentation ?
Transfer pricing documentation is mandatory in case the quantum of transactions exceed the prescribed limit. However, its always advisable to prepare transfer pricing documentation even if the transactions are below threshold limit.
What are safe harbour provisions ?
Safe harbour rules provide certain prices / mark ups whereby if the transactions entered into by applicant are above that prices / markups then such transactions will be accepted to be at arm's length by tax authorities.
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