The taxpayer doing business with foreign countries should get a transfer price certificate. The chartered accountants sign form 3CEB under section 92E. The form has 25 clauses. The three parts of the clause are general information, international transactions, value and method employed, specified domestic transactions, method employed and value involved. The specified domestic transactions with a threshold of 20 crore must get a certificate from a chartered accountant. In 2001, the transfer price regulations came into practice. The regulations are with changes to monitor local and global developments. In 2013, the BEPS rule was introduced. The blog highlights the transfer price audit and TP services offered by Indian companies.
Transfer price is the transaction between the two divisions of the company. A company can use variable and opportunity costs to calculate transfer prices. The transfer price is equal to or more than the marginal cost. The selling division fixes the marginal cost. The transfer price and corporate tax rates have an interrelationship. MNCs located in different locations try to manipulate transfer prices by using the country with lower corporate taxes. In Corporations, the purpose of transfer price is to calculate the performance and profit of different divisions of the company. Transfer price has an impact on the centre’s profit and resource allocation. The international transactions with a dependency on transfer price rates are as follows: sale of finished goods, purchase of fixed assets, purchase of raw material, sale or purchase of machinery, sale or purchase of intangibles, IT-enabled services, reimbursement of expenses, support services, technical services, software development services, royalty fees, management fees, corporate guarantee fees, and loan received or paid. Comparable uncontrolled price, cost plus method, and resale price method are the three methods used to calculate transfer price.
Transfer pricing services to Indian companies:
- Transfer pricing services are for transactions related to intangibles, intra-group services, loans and guarantees, research and development activities, purchase or sale of marketable securities, restructuring or reorganisation.
- The companies offer transfer price services to formulate and implement global and domestic transfer pricing policies.
- The TP companies conduct functional analysis, advance pricing agreements, and mitigate risk in the transfer price.
- The TP companies manage the advance pricing agreement, filling consultation, APA application, negotiation, data gathering, administration and finalization. TP companies help in the process of applying safe harbour rules. TP companies help in mutual agreement procedures.
- Represent before transfer pricing officer, DRP, commissioner of income tax, and income tax appellate tribunal.
- If the company fail to fill form no.3CEB or TP adjustment in the earlier years or the company was with INR 100 million or if concerns with survey or search matters related to TP in India, the company must perform TP audits.
Penalties under the Indian TP Act:
Indian TP regulation lists the following penalties:
Indian law charges two per cent of the value of the transaction in the following cases: failure to save documents or specific information, failure to include the transaction details in form no. 3CEB, incorrect information, and failure to submit the right information.
- The taxpayer should pay INR 0.1 million for not filling out form 3CEB.
- 50 per cent charge for underreporting of income and 200 per cent charge for misreporting of income.
- Inadequate or no information regarding arm’s length price adjustments ends with a charge of 100 to 300 per cent of tax.
- The taxpayer should pay 0.5 million for not furnishing master file details.
- The taxpayer failing to give information regarding CbCR should pay a penalty of INR 5000 for one month, INR 15,000 after one month, and INR 50,000 after the date of service.
- Failure to provide information for the CBC report ends with a penalty of INR 5000 for one month and INR 50,000 per day after the date of service.
- The taxpayers can also go for an appeal against the penalty.
Dispute management schemes:
Advance pricing agreement and safe harbour is the dispute management scheme.
Advance Pricing Agreement (APA):
In 2012 the APA programme entered into the Indian corporates for dispute prevention. According to the data from the financial year 2018 to 19, India stood at second place for APA application after the USA. Taxpayers can opt for multilateral, unilateral and bilateral options. APA does not check the threshold limit for international transactions. The CBPT Annual report says that the year 2019 had received 1155 APA applications. The unilateral number of applications is 944 numbers and the bilateral number of applications is 211. There was a marginal increase of 421 numbers in signed APA till 2022, march.
Safe Harbour provisions:
The safe harbour mechanism reduces the dispute by prescribing the minimum cost and cost plus mark-up cost for TP. The taxpayer paying tax for a specified block of financial year should maintain the safe harbour rules. The notification of CBDT for 2022 is applicable for 2021 as well. The safe harbour rule is applicable for the following transactions:
- Software development services
- IT services
- R&D services with IT background subject
- R&D for pharmaceutical drugs
- Providing intra-group loans in domestic and foreign currency.
- Offering corporate guarantee
- Production and export of auto components
- Utilising low-value intra-group services.
- SH option is not for international transactions with an INR of 2 or 100 billion.
Transfer price chart for 2023:
The different types of activities related to transfer prices are listed below. Each activity has a form submission, section and deadline date. The details are for the financial year 2022 to 2023. The assessment year is 2023 to 2024. The 2023 forms and submission dates are given below.
- Transfer price audit is explained in section 92E. The form related to the TP audit is 3CEB. The deadline for the submission of the 3CEB form is 31st October 2023.
- The section related to TP documentation is 92D. In 2023, 31st October is the last date of submission.
- The return of income with TP provisions is in the 139 section. In 2023, the 30th of November is the last date of submission.
- The details of a master file are in 92D (4). The form to be submitted is 3CEAA. In 2023, 30th of November is the last date of submission.
- The DCE is explained in the 92D (4) section. The form used for this information is 3CEAB. In 2023, 31st October is the last date of submission.
- The section 286 (1) deals with intimation by DCE. The form 3CEAC is for intimation by DCE. The last date for furnishing this information is two months before the CBCR form submission due date.
- The section 286 (2) deals with CBCR. The form related to this is 3CEAD. The last date is the end of the accounting year. In 2023, 30th December is the last date of submission.
- Section 44AB deals with audit reports with TP provisions. The last date for this information is 31, October, 2023.
- Section 92CB deals with safe harbour applications for international transactions. The form 3CEFA is used for the submission. In 2023, 30th of November is the last date of submission.
- The section related to safe harbour application for specified domestic transactions is 92CB. The form that deals with this information is 3CEFB. In 2023, 30th of November is the last date of submission.
The blog covered the details of meaning, penalty, dispute mechanism and different forms related to transfer price. In India, the average salary of a transfer pricing analyst is 4, 16,325 per year. The cash compensation for an analyst dealing with transfer price goes from 17,750 to 50,000. TP analysts deal with international transactions and it is a global profession. The exposure to international transactions gives rich experience to the professionals. The experience with transfer price analysis helps professionals in future growth.