Transfer Pricing – Meaning, Method, Compliances, Penalty, Report

Transfer pricing, in easy terms, can be specified as the rate charged by one system of the enterprise from another unit of the same business. X Inc. has two units, System A and System B. System A of the X Inc. manufactures speedometers for autos and Unit B produces automobiles which consist of the speedometers produced by Unit A of the X Inc. Now, the cost paid by System B for the speedometers produced by System A is the transfer rates, and the approach is called Transfer Price.

Transfer rates can be defined as the value which is attached to the goods or services moved between associated celebrations. Simply put, transfer rates is the cost which is paid for goods or services moved from one unit of an organization to its other units located in different countries.

Meaning of Transfer Pricing

• It connects to determination of correct Market Price i.e. Arm Length Price
• Any income from domestic deal will be calculated according to Arm Length Cost.
• Any allowance for expenditure/interest or allotment of expense or cost or earnings in relation to specified domestic transaction will be computed according to ALP.
• However if provisions of TP has the impact of minimizing the income chargeable to tax or increasing the loss to the assesse to whom TP uses, arrangements of TP shall not use.

Techniques of Transfer Pricing

Meaning of Associated Enterprises– Sec 92 A

Two Enterprises will be considered to be associated Enterprises, if any time during the year

• If one business holds, straight or indirectly, shares carrying not less than 26% of voting power in other enterprise
• Any other person holding directly or indirectly, shares bring not less than 26% of voting power of each of such enterprise.
• A loan given by one business to the other makes up not less than 51% of the Book Worth of the overall possessions of the other business.
• Goods made by one enterprise is sold to other business and the cost and other conditions are influenced by such other enterprise.
  

  Meaning of Specified Domestic Deal– Sec 92 BA

  • Payment made to Domestic Associated Celebrations for Expenditure i.e 40 A( 2) Payment.
  • Deal referred in Sec 80 A.

  Deal in between Assessee and other individual owing to close connection lead to more than common profits to assesse in Qualified service

  

  Main condition for being specified Domestic Transaction

  Aggregate of the transactions entered by the assessee in the previous year exceeds a sum of Rs. 20 crore.

  Compliance

  • Acquire a report under Type 3CEB from a Chartered Accounting professional and file it before tax authorities within due date of filing of return of income.
  • Due date for submitting tax return would be 30 th November for the assessee on whom move pricing arrangements apply
  • Assessee should submit the transfer pricing document to the tax authorities, within 30 days of the receipt of notification from the department.

  Penalties for Non Compliance

  Under Sec 271 AA	For failure to keep and maintain details and files For failure to report such deal For failure to maintain or furnishes an incorrect details or document	2% of the value of specified domestic transaction
  Under Sec 271 BA	For failure to furnish report from CA	Rs. 1 lakh
  Under Sec 271 G	For Failure to provide information/document called by tax authorities	2% of the value of defined domestic transaction

  TRANSFER PRICES Documentation

  • To be protected for 8 years from end of appropriate Assessment Year.
  • – Documents associated to name of the associated enterprise, nature of the relationship have also to be kept.

  Accountant’s Report– Sec 92 E

  • Every assessee who has actually participated in defined domestic deal during a previous year shall obtain a report from an accounting professional and furnish such report on or before the defined date in the prescribed kind properly signed and validated in the proposed way by such accountant.
  • Aggregate value of Defined domestic deal must not be less than Rs. 20 crore.

  CA Sweety Sharma Sweety24 [email protected] 098736-956-62

  Advised Articles

  • Corporate Social Obligation Complete information
  • Accounting Rate of Return
  • Capital Structure: Significance
  • Nostro Account and Vostro Account
  • CA Final DT Transfer-Pricing Summary Brochure