Abstract
Companies and persons related to each other are able to contract with each other to manipulate the prices of goods and services exchanged between them. These manipulated prices would ordinarily be of no concern to the tax revenue except when such manipulation results in less taxes owed compared to situations where goods and services are valued among unconnected parties. The legal regime relating to transfer pricing in India seeks to remedy the domination of contact through a statutory structure that allows related parties (or associated enterprises as the ITA terms it) to contractually determine the price between them in an international transaction as long as it is an arm’s length price and is determined through one of the methods prescribed by the regulations issued under the statutory provisions of the ITA.1 The five methods are the comparable uncontrolled price method (CUP), the cost plus method, the transactional net margin price method, the resale price method, and the profit split method.
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Notes
- 1.
Section 92, ITA states that any income arising from an international transaction shall be computed having regard to the arms length price. Section 92B has defined an international transaction as a transaction between two or more associated enterprises, either or both of whom are non-residents. Section 92(2) read with 92BA extend some of the ITA’s transfer pricing provisions to ‘specified domestic transactions’. This chapter will not consider the extension of the ITA’s transfer pricing provisions to purely domestic transactions.
- 2.
Section 92C.
- 3.
Section 92A(1)(a). Such a participation can be direct or indirect or through one or more intermediaries.
- 4.
Section 92A(1)(b). Much like the first part of the traditional definition, such a participation can be direct or indirect or through one or more intermediaries.
- 5.
The deeming provisions are found in section 92A(2).
- 6.
Section 92A(2)(a).
- 7.
Section 92A(2)(c).
- 8.
2016 SCC OnLine ITAT 12571.
- 9.
Ibid, para 10.
- 10.
Ibid, para 17.
- 11.
Vikas (2019).
- 12.
M/s LG Electronics India Pvt. Ltd. v Assistant Commissioner of Income Tax, MANU/ID/0036/2013.
- 13.
Ibid, para 8.9.
- 14.
Ibid, para 11.1.
- 15.
Id.
- 16.
LG Electronics, para 32 onwards (page 66–103), minority decision by Mr. Hari Om Maratha.
- 17.
2015 SCC OnLine Del 13940.
- 18.
Ibid, paras 71–73.
Reference
Vasal V (2019) Transfer pricing: advance pricing pact vs safe harbour provision, livemint, 10th May, 2019. Available at https://www.livemint.com/money/personal-finance/transfer-pricing-advance-pricing-pact-vs-safe-harbour-provision-1557417827008.html
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Nuggehalli, N. (2020). Transfer Pricing. In: International Taxation. SpringerBriefs in Law. Springer, New Delhi. https://doi.org/10.1007/978-81-322-3670-2_7
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DOI: https://doi.org/10.1007/978-81-322-3670-2_7
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