Transfer Pricing Issues CMA S VENKANNA COST

Transcript:Transfer Pricing Issues CMA S VENKANNA COST:
Transfer Pricing Issues CMA S VENKANNA COST ACCOUNTANT Background of TP The regulations govern the prices between inter company transactions within the multinational companies. Cross Border Transactions – between one country to another Relating to transfer of goods, intangibles and services. How much the MNCs pays tax to the country. Through manipulated prices, the MNCs pays lesser tax to the country. TP results substantial increase in tax revenue and penalties. Impact of not adopting Arm’s Length Price Results in additional income, interest and penalties Results in Double Taxation Problem. No refund of tax already paid in other countries. Long time litigations through tax audits by the department. If the MNCs does not apply normal transaction prices which are internationally applicable, and does not reflect arm’s length principle, it results it mis-pricing. The department may view this as tax avoidance. International Transactions vis-à-vis TP All International Transactions does not involve determination of ALP Conditions 1. Entities should be AEs 2. Transactions between AEs 3. If the Transaction Value is normal – no TP If the Transaction Value is not normal – Then Apply TP Rules 4. Determine ALP 5. Apply ALP and Determine the Revised Income – Sec.92 Computation 6. Determine the Additional Tax Liability in India Deemed AEs Test for AE A of US holds 30% Equity Shares of B India. And B are AEs. Exceeds 26% holding with voting power. A US holds 30% Equity Shares of B India. A also holds 30% equity shares of C Japan. A B and C are AEs. Uniliver USA holds 5% Shares in Univer India. The book value of assets is Rs.150 crores. Uniliver extends loan of Rs.100 crores to Uniliver India. Both are AEs. Loan extended exceeds 51% of book value. Influence ABC India manufacture ready made garments. RMs required Rs.950 crores. The yarn of Rs.900 crores is procured from DEF USA. The price is influenced by DEF. Both ABC India and DEF USA are AEs. X India sells goods to Y USA. X India also sells goods to Z UK. The prices are influenced by Y USA for the goods supplied to Z UK. X, Y and Z are regarded as AEs. Management More than half of directors of the Board appointed by other company. A company appointed 1 ED of B ltd. A and B are AEs. ABC is an HUF in India. The members of HUF controls an