What is Transfer Pricing? Is Transfer Pricing applicable to all companies? Penalty Provisions in India against guilty.
Transfer prices means are the charges made when a company supplies goods, services or finance to another company to which it is related. It is an internationally accepted principle that transactions between related parties (associated enterprises) should be based upon the same terms as between unrelated parties i.e. should be at Armís Length. Both the Double Tax Avoidance treaties entered into between countries and domestic tax legislation of various countries has adopted the arm's length principle.
Determination of Associate Enterprises
According to Indian Tax laws, a company can be termed as an associated enterprise with respect to the other enterprise, under the following conditions:
The following transactions
(ďspecified domestic transactionsĒ) will be included if
their aggregate exceeds INR 50 million in an Financial
Regulations in India to tackle transfer pricing
Section 92 to 92F of Income-tax Act, 1961and Rule 10A to 10E of Income-tax Rules, 1962 requires international transactions to be armís length in nature when occurring between associated enterprises.
Determination of inter-company transaction is at armís length
There is no universal roadmap to armís length pricing. Usually, the first step is to analyze the transaction, including the functions, assets and risks. Next, the most appropriate transfer pricing method should be determined. Finally, that method should be applied to the transaction so that an economic analysis can be confirmed. These three steps are the basic building blocks to prepare the transfer pricing documentation.
Indian taxpayers obligations
Taxpayers are required to maintain, on an annual basis, a set of extensive information and documents relating to international transactions undertaken with AEs. Rule 10D of the Income-tax Rules, 1962 prescribes detailed information and documentation that the taxpayer has to maintain.
Taxpayers having aggregate
international transactions below the prescribed
threshold of INR 10 million are relieved from
maintaining the prescribed documentation. However, even
in these cases, it is imperative that documentation be
maintained that is adequate to substantiate the
armís-length price of international transactions.
Penalty Provisions against violation of law and guilty
A Penalty of 2% of the value of international transaction may be imposed, if the taxpayer fails to maintain prescribed documents or information or; report any international transaction which is required to be reported, or; maintains or furnishes any incorrect information or documents.
Taxation on Charitable Trust and NGO
What is approval u/s 80G(5)? Is it necessary for a charitable Institution? How to apply for it? What is the use of approval u/s 80G(5) for Charitable Trust, Charitable Society, Non Governmental Organizations (NGO), Section 25 Companies and other exempted institutions?