The transfer pricing (TP) provisions were earlier restricted to International transactions only. However, with effect from 1st April 2013 the transfer pricing scope has been extended to specific domestic transactions and is accordingly effective from Assessment Year (A.Y) 2013-14.
Legal Definition of Domestic Transfer Pricing?
Section 92BA defines specified domestic transactions which are governed by the TP regulation which states that specified domestic transactions in case of the assessee mean any of the following transactions
Any expenditure incurred or to be incurred in connection with a payment made or to be made to a person referred to in section 40A (2) (b).
Transactions referred to in section 80A.
Any transfer of goods or provision of services as provided in subsection 8 of section 80 – IA.
Any business transaction between the assessee and another person as referred to in subsection 8 of section 80 – IA
Any transactions which have been mentioned under section under chapter VI-A or section 10AA, o a person to whom provisions of subsection 8 or subsection 10 of section 80 IA is applicable
And where the aggregate of such transactions entered into by the assessee in the previous year exceeds 20 crores
Any other transactions as may be prescribed
The above provisions shall be applicable only if the aggregate value of the turnover of the above-mentioned transactions exceeds Rs. 20 crore (w.e.f. 1st April 2017 i.e. A.Y. 2017-18 onwards)I.e. if the threshold limit has crossed the taxpayer will be required to comply with the TP requirements with reference to all the transactions in spite of the fact that value of the transactions under any of the head may be small. Therefore, there is no threshold for every head of the definition
Applicability of Domestic Transfer Pricing?
Tax Payers cannot apply transfer pricing to specific domestic transactions to reduce the tax liability
Monetary threshold limit of 20 crores is to be calculated on the basis of the aggregate of payments and receipts to which these provisions apply.
Definition of Related party includes expenses disallowed to cover the entities which have common beneficial ownership
Transfer pricing is mostly applicable to international transactions and specified domestic transactions and specifically excludes Advance Pricing Agreement provisions.
Concept of Arm's Length Price(ALP)
The concept of ALP has also been extended to Specified Domestic Transactions. ALP is defined as the price which is applied to proposed to be applied in a transaction the assessed and any other unrelated person in uncontrollable condition
Methods of Computing ALP
Comparable uncontrolled price method
Resale price method
Cost plus method
Profit Split method
Transactional net margin method
Such other method as may be notified by the Board
Documentation requirements for Domestic Transfer Pricing transactions
Profile of the company
Profile of the group companies
Profile of the unit claiming tax holiday
Profile of all the related parties
Terms of the transaction
Functional analysis specifying functions, assets and risk
Economic analysis containing method, selection and comparable benchmarking
Budgets and comparable
Pricing Related correspondence such as email, letters etc.
Official publication report by government, Stock Exchanges
Our Approach and support
1. Identify the transactions:
We provide assistance in identifying arrangements that are covered under Specific Domestic Transactions. We help in mapping of the transactions and documenting the current pricing policy
2. Assessment of Impact:
We undertake review of the agreements and the documents on the basis of which price is being charged and paid by the entities
Evaluate the impact on the basis of present pricing policy of the group to analyze and identify whether the transactions are in line with the arm’s length pricing
Technical assessment of the arrangement to evaluate whether Specified Domestic Transactions provisions are applicable or not and establishing ALP for the same
3. Understand the implication
For the identified Specified domestic transaction undertake a high-level functional analysis of the transactions.
If required undertake high level benchmarking analysis
Advice on the SDT compliance/documentation
Key Service provided by us
Our team of experts will help you to meet documentation and compliance requirements as follows:
Help to identify specifically related party transactions and specified domestic transactions stemming between them which comes under Domestic TP purview.
Help in conducting functional and Benchmark analysis
Assistance in developing commercially viable and fiscally efficient TP policies
Assistance in documentation preparation on timely basis as per the Indian TP Regulation
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