OVERVIEW OF
INDIAN DOMESTIC TRANSFER PRICING
Vikram Vijayaraghavan, Advocate
M/s Subbaraya Aiyar, Padmanabhan
& Ramamani Advocates, Chennai
TABLE OF CONTENTS
Part
Topic
I
INTRODUCTION TO TRANSFER PRICING
II
EVOLUTION OF SPECIFIED DOMESTIC TRANSACTIONS (SDT)
III
SECTION 92BA
IIIA
SECTION 40A(2)(b) & SDT
IIIB
SECTION 80A(6) & SDT
IIIC
SECTION 80-IA(8), 80-IA(10), 10AA & SDT
IV
PRACTIAL SDT SCENARIOS….
V
COMPLIANCES & PENALTIES
VI
DOCUMENTATION REQUIREMENTS FOR SDT
VII
EXECUTIVE SUMMARY
PART I – An Introduction to
Indian Transfer Pricing
Overview of TP
Rationale behind TP provisions
OECD Guidelines defines “Transfer Prices” as “the prices at which an enterprise
transfers physical goods and intangibles or provide services to associated enterprises”
Reason for TP is that companies under-charge their services or over-price their imports
to associate enterprises and thereby shift their profits abroad for various reasons
Aim of TP provisions
Basically, it is establishing the price charged for transactions between related entities,
be it tangible property, intangible property, controlled services and financing
arrangements
Indian TP vs. OECD TP Guidelines
FY 2001-02 - Chapter X introduced to deal with TP
SIMILARITY
Both base the TP regime on the Arm’s-Length Principle or ALP (defined in Sec.92F(ii))
of International transactions (Sec.92B) between Associated Enterprises (Sec.92A).
DIFFERENCES
• The definition of “Associate Enterprise” is quite broad under Indian TP as compared
to OECD
• Multiple-year data is not allowed in Indian TP except under certain circumstances
• Arithmetic mean of comparables is used in Indian TP and not inter-quartile ranges
• Indian TP has stringent documentation guidelines
• Indian TP lacks guidelines for intra-group set-offs
Indian TP provisions
TP in Practice
Practical TP assessment
• (ALP) means a price applied or proposed to be applied in a transaction between nonAssociated Enterprises in uncontrolled conditions
•The most appropriate method shall be applied for determination of the ALP out of
CUP, RPM, Cost+, Profit-Split, TNMM methods (and the sixth method now prescribed
by CBDT)
•Where more than one price is determined by the most appropriate method, the ALP
will be the arithmetic mean of such prices.
•Where arm’s length price is within 5% range of the transaction price, no adjustment is
warranted (i.e., 5% band and not standard deduction). For A.Y.2013-14 onwards,
tolerance range would be notified by the central government subject to maximum 3%
FINANCE ACT 2012
Increased penalty
Provisions for TP
Scope of TP
expanded to include
SPECIFIED DOMESTIC
TRANSACTIONS (SDT)
Scope of ‘International
Transactions’ retrospectively
enlarged to include
Guarantees, debts etc.
Power of appeal by
Dept. against DRP
Order
APA introduced
Increase in scope
of powers of TPO
PART II. EVOLUTION OF SDT
(SPECIFIED DOMESTIC TRANSACTIONS)
CIT Vs Glaxo Smithkline Asia (P) Ltd
Reasons for Recommendation
• In the case of CIT Vs Glaxosmithkline Asia (P) Ltd. [(2010) 236 CTR (SC) 113],
the Hon’ble Supreme Court made recommendations to extend the TP
regulations to the domestic transactions covered under Section 40 A(2) and
80-IA(10).
“In the case of domestic transactions, the under-invoicing of sales and
overinvoicing of expenses ordinarily will be revenue neutral in nature, except in
two circumstances having tax arbitrage—
[i] If one of the related Companies is loss making and the other is profit
making and profit is shifted to the loss making concern; and
[ii] If there are different rates for two related units [on account of different
status, area based incentives, nature of activity, etc.] and if profit is diverted
towards the unit on the lower side of tax arbitrage. For example, sale of
goods or services from non-SEZ area [taxable division] to SEZ unit [nontaxable unit] at a price below the market price so that taxable division will
have less profit taxable and non-taxable division will have a higher profit
exemption”
CIT Vs Glaxo Smithkline Asia (P) Ltd
Irony?
“In order to reduce litigation, we are of the view that certain
provisions of the Act, like Section 40A(2) and Section 80IA(10),
need to be amended empowering the Assessing Officer to make
adjustments to the income declared by the assessee having regard
to the fair market value of the transactions between the related
parties. The Assessing Officer may thereafter apply any of the
generally accepted methods of determination of arm's length price,
including the methods provided under Transfer Pricing
Regulations…………Normally, this Court does not make
recommendations or suggestions. However, as stated above, in
order to reduce litigation occurring in complicated matters……”
PART III. Section 92BA
Section 92BA
Meaning of specified domestic transaction
92BA. For the purposes of this section and sections 92, 92C, 92D and 92E, "specified
domestic transaction" in case of an assessee means any of the following transactions,
not being an international transaction, namely:—
(i) any expenditure in respect of which payment has been made or is to
be made to a person referred to in clause (b) of sub-section (2) of
section 40A;
(ii) any transaction referred to in section 80A;
(iii) any transfer of goods or services referred to in sub-section (8) of
section 80-IA;
(iv) any business transacted between the assessee and other person as
referred to in sub-section (10) of section 80-IA;
(v) any transaction, referred to in any other section under Chapter VI-A
or section 10AA, to which provisions of sub-section (8) or sub-section
(10) of section 80-IA are applicable; or
(vi) any other transaction as may be prescribed
and where the aggregate of such transactions exceeds a sum of five crore rupees
PART IIIA. Section 40A(2)(b) & SDT
Section 40A(2)(a)
Proviso to S.40A(2)(a)
40A(2)(a) Where the assessee incurs any expenditure in respect of which
payment has been or is to be made to any person referred to in clause (b) of
this sub-section, and the Assessing Officer is of opinion that such expenditure
is excessive or unreasonable having regard to the fair market value of the
goods, services or facilities for which the payment is made or the legitimate
needs of the business or profession of the assessee or the benefit derived by or
accruing to him therefrom, so much of the expenditure as is so considered by
him to be excessive or unreasonable shall not be allowed as a deduction :
Provided that no disallowance, on account of any expenditure being excessive
or unreasonable having regard to the fair market value, shall be made in
respect of a specified domestic transaction referred to in section 92BA, if such
transaction is at arm's length price as defined in clause (ii) of section 92F
Section 40A(2)(a) – Substantial interest
Definition of substantial interest
Explanation.—For the purposes of this sub-section, a person shall
be deemed to have a substantial interest in a business or
profession, if,—
(a) in a case where the business or profession is carried on by a
company, such person is, at any time during the previous year,
the beneficial owner of shares (not being shares entitled to a
fixed rate of dividend whether with or without a right to
participate in profits) carrying not less than twenty per cent of
the voting power; and
(b) in any other case, such person is, at any time during the
previous year, beneficially entitled to not less than twenty per
cent of the profits of such business or profession.
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Case 1 - Section 40A(2)(b)(ii)
Director or any relative of Director
Relative in relation to individual means husband, wife, brother or sister or any lineal
ascendant or descendant of that individual
Relative
Mr. A
Mr. B
Director
Mr. C
Director
XYZ Ltd.
(assessee)
denotes Specified Domestic Transaction (SDT)
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Case 2 – Section 40A(2)(b)(iii)
Individuals having substantial interest in business of assessee or any relative of such
individual
Relative
Relative
Mr. B Director
Mr. A
Substantial
interest > 20%
XYZ Ltd.
(assessee)
denotes SDT
Mr. C
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Case 3.1 - Section 40A(2)(b)(iv)
To a company having substantial interest in the business of XYZ Ltd. or Director of such
company or any relative of Director
Director
XYZ Ltd.
Relative
Mr.A
Substantial
interest > 20%
ABC Ltd. –
assessee
denotes SDT
Mr. B
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Case 3.2 - Section 40A(2)(b)(iv)
Any other company carrying on business in which the first mentioned company has
substantial interest
Substantial
interest > 20%
XYZ Ltd.
Substantial
interest > 20%
ABC Ltd. –
assessee
denotes SDT
DEF Ltd.
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Case 4 - Section 40A(2)(b)(v)
To a company of which a Director has substantial interest in the business of XYZ Ltd. or
any other Director of such company or relative of Director
Director
Mr. A
Director
XYZ Ltd.
Mr. C
Relative
Substantial
interest > 20%
ABC Ltd.
Assessee
denotes SDT
Mr. D
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Case 5.1 - Section 40A(2)(b)(vi)
To a company in which ABC Ltd. has substantial interest in the business of the
company
ABC Ltd.
Substantial
interest > 20%
XYZ Ltd.
denotes SDT
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Case 5.2 - Section 40A(2)(b)(vi)
Any director or relative of a director of XYZ Ltd. having substantial interest in that
person
Relative
Mr. A
Substantial
interest > 20%
Mr. B
Director
XYZ Ltd.
Substantial
interest > 20%
DEF Ltd.
ABC Ltd.
assessee
denotes SDT
Issues with S.40A(2)
• Diligence in identification of Specified
Domestic Transactions
• Benchmarking of MD/Director’s remuneration
• Contemporaneous documentation tedious to
maintain
• Identification of comparables and providing
suitable adjustments maybe a herculean task
PART IIIB. Section 80A(6) & SDT
Section 80A(6)
Section 80A(6)
“(6) Notwithstanding anything to the contrary contained in section 10A or section
10AA or section 10B or section 10BA or in any provisions of this Chapter under the
heading "C—Deductions in respect of certain incomes", where any goods or services
held for the purposes of the undertaking or unit or enterprise or eligible business are
transferred to any other business carried on by the assessee or where any goods or
services held for the purposes of any other business carried on by the assessee are
transferred to the undertaking or unit or enterprise or eligible business and, the
consideration, if any, for such transfer as recorded in the accounts of the undertaking
or unit or enterprise or eligible business does not correspond to the market value of
such goods or services as on the date of the transfer, then, for the purposes of any
deduction under this Chapter, the profits and gains of such undertaking or unit or
enterprise or eligible business shall be computed as if the transfer, in either case, had
been made at the market value of such goods or services as on that date”
Section 80A(6) contd…
Explanation to Section 80A(6)
“Explanation.—For the purposes of this sub-section, the expression "market value",—
(i) in relation to any goods or services sold or supplied, means the price that such
goods or services would fetch if these were sold by the undertaking or unit or
enterprise or eligible business in the open market, subject to statutory or regulatory
restrictions, if any;
(ii) in relation to any goods or services acquired, means the price that such goods or
services would cost if these were acquired by the undertaking or unit or enterprise or
eligible business from the open market, subject to statutory or regulatory restrictions,
if any;
(iii) in relation to any goods or services sold, supplied or acquired means the arm's
length price as defined in clause (ii) of section 92F of such goods or services, if it is a
specified domestic transaction referred to in section 92BA.”
PART IIIC. Section 80-IA(8), 80-IA(10), 10AA
& SDT
Section 80-IA(8)
Any transfer of goods or services referred under Section 80-IA(8)
“(8) Where any goods or services held for the purposes of the eligible business are
transferred to any other business carried on by the assessee, or where any goods or
services held for the purposes of any other business carried on by the assessee are
transferred to the eligible business and, in either case, the consideration, if any, for
such transfer as recorded in the accounts of the eligible business does not correspond
to the market value of such goods or services as on the date of the transfer, then, for
the purposes of the deduction under this section, the profits and gains of such eligible
business shall be computed as if the transfer, in either case, had been made at the
market value of such goods or services as on that date :
…
Explanation.—For the purposes of this sub-section, "market value", in relation to any
goods or services, means—
(i) the price that such goods or services would ordinarily fetch in the open market; OR
(ii) the arm's length price as defined in clause (ii) of section 92F, where the transfer
of such goods or services is a specified domestic transaction referred to in section
92BA.
80-IA(8) example
Extraordinary profits
ABC Ltd.
Unit A
Telecom
Business
Transfer at Rs.150
Market value of Rs.100
ALP would be taken as Rs.100
Goods & Services
Unit B
Manufacturing
Business
Section 80-IA(10)
Any transfer of goods or services referred under Section 80-IA(8)
(10) Where it appears to the Assessing Officer that, owing to the close connection
between the assessee carrying on the eligible business to which this section applies
and any other person, or for any other reason, the course of business between them is
so arranged that the business transacted between them produces to the assessee
more than the ordinary profits which might be expected to arise in such eligible
business, the Assessing Officer shall, in computing the profits and gains of such eligible
business for the purposes of the deduction under this section, take the amount of
profits as may be reasonably deemed to have been derived therefrom:
Provided that in case the aforesaid arrangement involves a specified domestic
transaction referred to in section 92BA, the amount of profits from such transaction
shall be determined having regard to arm's length price as defined in clause (ii) of
section 92F.
80-IA(10) example
Extraordinary profits
ABC’s Ltd.
Infrastructure
unit
Close connection
Goods & Services
Operating Margin 35% (Extraordinary profits)
Industry Average 10%
ALP will be taken as10%
XYZ Ltd.
Issues with SDT & 80A, 80-IA and 10AA
Issues and Challenges
•Any transaction referred in Chapter VI-A or Section 10AA to which 80-IA (8) or 80IA(10) are applicable
•Now, transfers between inter-units and with other business are all covered. A general
broad sweep of common transactions by companies is now under SDT
•The term ‘close connection’ NOT DEFINED. It could be interpreted to mean
companies which participate directly or indirectly or through one or more
intermediaries in the management or control or capital of the company. It also
includes companies which are not related but with which it has financial or dealings or
any other arrangements which may or may not be for tax arbitrage.
•Whether Capital account transactions are covered?
•Double-disallowances are possible (example later)
FAIR MARKET VALUE vs. ALP
Particulars
Fair Market Value
Arm’s length Price
Basis of Distinction
The term Fair Market Value is not By introducing ALP, there
defined under the Act.
will be a shift from
discretionary undefined
situation to a situation
which would showcase a
greater discipline.
Definition
The price which the goods or
services would fetch in the open
market.
A price which is applied in
a transaction in
uncontrolled conditions.
Computation
Mechanism
No specific mechanism provided
in law.
Appropriate method out of
the five methods which
have been prescribed.
FAIR MARKET VALUE vs. ALP
Particulars
Fair Market Value
Arm’s Length Price
Transaction Value
Any market price point can be
treated as FMV.
Arithmetic mean of
comparable prices
treated as ALP.
Sample Size
One comparable is sufficient to
determine FMV.
Require bigger sample
size for determining ALP
Deviation
No deviation permitted from
FMV.
Plus or minus 3%
deviation is allowed
PART IV. PRACTIAL SDT SCENARIOS….
(Points to Ponder!)
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Example 1: Supply of parts to group
companies
Local
Manufacturer of
Piston Rings
Group Company
Supply to third-party of
piston rings
Leading Automobile
company
(*) OE as well as After-market sales
denotes SDT
Local
Manufacturer of
Pistons
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Example 2: Payment towards Logo/Brand
charges
Holding company having
ownership of
brand/logo/trademarks
Logo charges @ 1.25% of sales
Group company
(Healthcare)
denotes SDT
Group company
(Insurance)
Group company
(Home appl.)
- Benchmarking issues –how to value brand?
- Over long period, holding company might be held
to derive some benefit from group companies…
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Example 3: Double disallowance under SDT
Double disallowance possible when dealing with 10AA/80-IA units
10AA unit of
group
ALP Rs.100
Sale of goods Rs.150
- Sold at less than ALP
- More than ordinary profit made
- Disallowance of Rs.50/-
denotes SDT
Non-eligible
unit of group
- Expenditure (payment) less than ALP
- Disallowance of Rs.50/-
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Example 4: HQ Allocation & Inter-unit
HEAD OFFICE / CORPORATE
OFFICE
Unit – 1 SEZ
Rs.350/- per hour
Third-party
insurance
business
Rs.150/per hour
UNIT - 2
INSURANCE
UNIT – 3
TELECOM
Rs.250/per hour
- Whether head office expenses required to be
allocated with markup under Domestic TP?
- Will allocation be challenged?
- Whether ITES provision by Unit-1 to all other units
will come under Domestic TP?
irector or any other relative of the Director who has substantial interest in the business of the assessee,
he assessee or any relative of the assessee having
•Explanation
substantial
clause
interest
of Section
in the
40A(2)(b).
business of any other assessee.
he term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b).
Example 5: Interest free loan
Interest free loan given to eligible unit – extraordinary profit?
Interest Free Loan
Eligible unit of
ABC Ltd.
ABC Ltd.
Loan given @
17%
Non-Eligible
unit of ABC Ltd.
- Also extraordinary profit of eligible unit, disallowance
possible
- As per AO, ALP loan at market @ 12% - subsidiary
expenditure on interest is excess
Part V : Compliance & Penalties
Applicability Of TP provisions to SDT
Section
Provisions
Applicability of Specified
Domestic Transaction
92
Computation of Income having regard
to Arm’s Length price
Yes
92A
Meaning Of Associated Enterprise
No
92B
Meaning Of International Transaction
No
92BA
Meaning Of Specified Domestic
Transaction
Yes
92C
Methods Of Computation of Arm’s
Length Price
Yes
92CA
Reference to transfer pricing Officer
Yes
92CB
Safe Harbor Rules
Yes
92CC
Advance Pricing Agreement
No
92CD
Effect Of Advance Pricing Agreement
No
92D
Maintance Of Information and
Documents
Yes
92E
Accountant’s Report
Yes
144C
Dispute Resolution Panel
Yes(?)
COMPLIANCES AND PENALTIES
Particulars
Compliance to be followed
Penalties
Filing of the Audit Report
in Form 3CEB
Mandatory to file Form 3CEB before the
due date of filing return of income if the
value of SDT exceeds INR 5 crs or even if
there is international transaction with
Associated Enterprises of even a single
Rupee
Rs 1,00,000
(Sec 271BA)
Reporting of each SDT
and international
transaction entered into
with related party in
Form 3CEB
Mandatory to report every transaction in
form 3CEB
2% Of the value of each
transaction (Sec 271AA)
Maintance of transfer
pricing Documentation
Mandatory to maintain documentation
where transaction subject to transfer
pricing exceed 1Cr.in a financial year for
international transaction & INR 5 Cr for SDT
2% Of the value of each
transaction (Sec 271AA)
Maintance and furnishing Mandatory to maintain and furnish correct
2% Of the value of each
Concealment of
particulars of income and
furnishing inaccurate
particulars thereof
Mandatory to furnish correct particulars
of transaction before the Revenue
authorities
Penalty ranging from
100% to 300% of the
amount of tax sought to
be evaded if adjustment
is made by the Revenue
authorities (Expl.7 to
Sec.271(1) (c)
Failure to Furnish
information or
documents as required
under section 92D(3)
Mandatory to furnish information or
documentation required by the revenue
authorities within timelines as per section
92(D)(3)
Penalty @ 2% of the
value of the transaction
for each such failure(Sec
271 G)
Overview of Penalties
Penalty provisions of TP made
applicable to SDT
2% of Transaction Value for:
a) Non-maintenance of
documents
b) Non-submission of documents
In case of adjustment
100% to 300% of additional tax
New penalty provisions for TP & SDT
w.e.f. 01.04.2013
2% of Transaction Value for:
Non-reporting of transaction
b) For incorrect
maintenance/submission of
documents
CURRENT & ADDITIONAL COMPLIANCE
REQUIREMENTS FOR SDT
CURRENT COMPLIANCES
ADDITIONAL COMPLIANCES
•Section 40A – Transactions to
be reported in Tax Audit Report
in Form 3CD
•Section 10AA – CA Certificate
in Form 56F needs to be filed
•Section 80IA – Declaration of
profit to be made by CA in Form
10CCB
• Maintain
contemporaneous
documentation as prescribed
in Rule 10D and prove that
transactions are at ALP by
selecting MAM
• Filing audit report in Form
3CEB/any other Form that may
be prescribed
Part VI :Documentation required for SDT
Section 92D w.r.t SDT
Maintenance Of Information and Documents (Sec 92D)
As per section 92D, every person who has entered into Specified Domestic Transaction shall keep
and maintain such information and documents in respect thereof, as prescribed in RULE 10D.
 Organizational Structure
 Nature of business
 Profile of companies with which assessee has specified domestic transaction
 Controlled transactions
 Background documents
 Comparability, functional and risk analysis
 Industry and market conditions forecasts/ budget, financial estimates
 Uncontrolled transactions and comparability analysis
 Selection of transfer pricing method
 Application of the transfer pricing method
 Assumptions, strategies, policies
 Supporting information
Documentation
Need and Importance
•Onus on the Assessee to prove the genuineness of the
transaction.
•Information is gathered from databases such as Capitaline
and Prowess and other public sources.
•Assessee has to find proper comparables to determine
acceptable Arm’s Length Price.
•Assesse has to substantiate the Value ascertained for the
transaction.
•Non-substantiation leads to rejection by TPO
SDT – Typical Workflow
Typical workflow of SDT
•
•
•
•
•
Identification of Specified Domestic Transactions
Function, Assets & Risk Analysis
Comparable transactions identification
Choose Most Appropriate Method
Adjustments for differences between comparables and
assessee transactions
• Computation of ALP
• Documentation, Return Filing and Form 3CEB filing
• Assessment proceedings
Documentation Synopsis
Entity Related
Price Related
• Industry Profile
• Group Profile
• Company
Profile
• Related Party
Profile
• Terms
between
Parties
• FAR Analysis
• Comparability
Analysis
Transaction
Related
•
•
•
•
•
•
Agreements
Invoices Raised
Accounts
Annual Reports
Business plans
Comm.
affecting price
Types of Transactions and the
documents required
……. Documentation…..
Certain Transactions and their Required Documents
Purchase/
sale of
Raw
Materials
Reimburse
ment of
Expenses
•
•
•
•
Purchase/ Sale order
Invoices
Product details
Pricing strategy &
negotiation
• Terms of payment
• Sales to 3rd parties
• Quotes from
competitors
• Nature of expenses
with break-up
• Employee details
• Actual invoices
• Reason for expenses
Remuneration
to Director
Interest on
Loan
•
•
•
•
Qualification
Experience
Profile
Minutes of
meetings
• HR data of
other firms
• Loan
agreement
• Interest Rate,
basis of
determination
• Rate card for
period of loan
• Reason for
higher or lower
interest rate
Rent Paid
• Rental agreement
• Rent receipts
• Fair market value of
the property
(municipal valuation)
• Reliable sources of
rent in surrounding
area
Corporate
Cost
Sharing
•
•
•
•
•
Nature of expenses
Proof of services
Cost benefit analysis
Basis of allocation
Auditor’s certificate
Executive Summary
What is in store ahead?
• SDT regime is onerous – more work for everyone involved
• S.40A(2)(b) requires due diligence for coverage of all
possible cases
• All special deductions (Chapter VI, S.10AA etc) under
attack now
• Thousands of practical everyday transactions happening in
Indian business now will be under scrutiny
• Benchmarking, documentation, comparability issues are
points of concern
• Leverage for the Department to go after a huge swath of
transactions. SDT is a likely a step back in terms of tax
certainty and business-friendly environment
Thank you!
Contact details
vvikram@saprlaw.com
yourvakil@gmail.com
http://www.saprlaw.com
Free tax Blog and newsletter- number of articles,
presentations and analysis
Acknowledgments: Ms.B.Mala, Mr.V.P.Thangadurai,
Ms.R.Bhavya, Mr.R.Dhiraj, Mr.Prashanth Jain
SAPR Advocates