The Increasing participation of multinational groups in economic activities in the country has given rise to new and complex issues emerging from transactions entered into between two or more enterprises belonging to the same multinational group. Business may be carried on between a resident and a person who is non-resident or not ordinarily resident in India, and owing to close connection between them, the course of business may be so arranged that the resident ,make either no profits or less than the ordinary profits in that business. Such an arrangement would deprive that Indian revenue of tax, which would otherwise be payable by the resident.
Frequently Asked Question
Associated enterprises are those which are owned or controlled by the same or common interest. The Transactions are between two or more associated enterprises either or both of which are non-residents.
A transfer pricing study examines the pricing of transactions between related two or more associates. By applying and documenting various test methods, it is determined whether the transactions are conducted under market conditions and survive the scrutiny of tax authorities.
The statutory compliance is usually filing of Form No. 3CEB along with form no 3CA and 3CD and having TP Study done for their business as discussed in Pt no 2
The following are methods of calculating transfer price:
(a) Comparable uncontrolled price method (CUP method)
(b) Resale price method
(c) Profit split method
(d) Cost-plus method
(e) Transaction net margin method (TNMM)
The comparable uncontrolled price (CUP) method establishes a price based on the pricing of similar transactions that have taken place between third parties. When comparable uncontrolled prices exist, this is a reliable transfer pricing method, and one of the most difficult to challenge.