transfer pricing india cs gaurav +919990694230
TRANSCRIPT
8/10/2019 Transfer Pricing India CS GAURAV +919990694230
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Transfer Pricing
INDIA /INTERNATIONALCSGAURAV+919990694230
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Revenue Profit
Capital GainRoyalty
Inter Company
Control System
cost centresrevenue centres
profit/Investment centre
Intra Company
Internal(Within the country)
Non-Related:
Profit/Dividend/RoyaltyForex Fluctuations
Accounting
Related
Profit/Dividend/RoyaltyTransfer Pricing
Forex/Accounting
Inter Comapny
Control Systems
Forex FluctuationsAccounting
Transfer Pricing
Intra Company
External(outside the country)
Transactions
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Transfer Price: What and
Why? TP means the value or price at which
transactions take place amongstrelated parties.
TP are the prices at which anenterprise transfers physical goods andintangible property and providesservices to associated enterprises
TP gain significance because these canbe used by the controlling party totheir advantage to minimise taxincidence.
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Transfer Price: What and
Why? Approximately 60% of the total transactions across the
world are between related parties.
If the transactions are across different tax jurisdictions,
where tax rates are different, shifting is beneficial.
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Factors Affecting Transfer
Pricing Internal factors: Performance Measurement and
Evaluation
External Factors:
Accounting Standard
Income Tax
Custom Duty
Currency Fluctuations
Risk of Expropriation
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Transfer Price Regulations
International
OECD formulated
“Guidelines on transfer
pricing”. They serve asgenerally accepted
practices by the tax
authorities
India
The Finance Act 2001
introduced the detailed
TPR w.e.f. 1st April 2001
The Income Tax Act
AS-18
Other Relevant Acts
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Accounting Standard 18
Requires disclosure of ‘any elements of the related partytransactions necessary for an understanding of the
financial statements’.
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Related Parties
Control by ownership
50% of the voting right
Control over composition of board of directors
Power to appoint or remove the directors
Control of substantial interest
20% or more interest in the voting power
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AS-18 and Transactions
Purchase and sale of goods;
Rendering or receiving services;
Agency arrangements;
Leasing arrangements;
Transfer of research and development;
Licence aggrements;
Finance
Guarantees and collaterals;
Management contracts.Friday,
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Income Tax Act and TP
Finance Act 2001 substituted the old section of 92 of the ITA bysections 92,92A to 92 F.
These sections are the backbone of Indian TPR.
These sections define the meaning of related parties, internationaltransactions, pricing methodologies etc.
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TPR: Some Important
Concepts Income/Expenses/Cost arising from an international
transaction shall be computed having regard to
arm’s length price (ALP). ALP provisions can be
applied if it leads to
decrease in taxable incomeor increase in losses.
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Associate Enterprise: 92A
Direct Control/Control throughintermediary
Holding 26% of voting power
Advance of not less than 51% of the totalassets of borrowing company.
Guarantees not less than 10% on behalf ofborrower
Appointment of more than 50% of the BoD Dependence for 90% or more of the total
raw material or other consumables
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International Transactions:
92B Transaction between two or more AE of which either
both or anyone is a non-resident.
Transactions:
Purchase/Sale/Lease
Provision of service
Lending or borrowing
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Arm’s Length Price
Price which two independent firms would agree on.
Price which is generally charged in a transaction
between persons other than associated enterprises.
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Arm’s Length Price: 92C
Comparable uncontrolled price method
Resale price method
Cost plus method Profit split method
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Comparable uncontrolled
price method CUP method compares the price transferred in a
controlled transaction to the price charged in a
comparable un-controlled transaction.
CUP method is the most direct and reliable way to applythe arm’s length principle.
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Resale price method
The resale price method begins with the price at which
a product is resold to an independent enterprise (IE)by
an associate enterprise.
X sold to AE at Rs. 1000 (profit: 300)
AE sold to an IE at Rs. 2000
(profit of Rs. 500 for relevant IE)
Arms length price = 2000 - 500 = 1500
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Profit Split Method
PSM is used when transactions are inter-related and is
not possible to evaluate separately.
PSM first identifies the profit to be split for the AE. The
profit so determined is split between the AE on thebasis of the functions performed/assets/CE
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Cost Plus Method
In CP method, first the cost incurred is determined. An
appropriate cost plus mark-up is then added to the cost
to arrive at an appropriate profit. The resultant figure is
the arm’s length price.
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Some Transactions subject to ALP
• Purchase at little or no
cost.
•Payment for servicesnever rendered.
• Sales below MP/
Purchase above MP
• Interest free
borrowings
• Exchanging property
• Selling of real estate at
a price different fromMP
• Use of trade names or
patents at exorbitant
rates even after their
expiry.
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Some Cases
• Kinetic Honda Motors
– Collaborator: Honda Motor Co. Ltd Japan and
their Subsidiary Honda Trading Corpn. Japan
• Hero Honda Motors Ltd.
– Parent: Honda Motor Co. Ltd Japan and their
Subsidiary Honda Trading Corpn. Japan
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Some Cases
• Peico Electronics & Electricals Ltd.
– Parent: Phillips Netherlands and its subsidiaries
• Asea Brown Boveri
– Parent: ABB Switzerland and its subsidiaries
• Videocon Group
– Collaborators: Toshiba Co., Mitsubishi Co
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Transfer Pricing
INDIA /INTERNATIONAL
CSGAURAV+919990694230
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