New Transfer Pricing Method in India – A Quick Glance
With various small corporations evolving into global enterprises, compliance to the constantly changing international laws and regulations is fast becoming a complex and pricey undertaking for transfer pricing issues. Heavy penalties, extensive audit and inspection activity, have made it imperative to be up to date to stay away from costly penalties.
The Indian Tax Administration has introduced a new transfer pricing method which uses the ‘other method’ for determining Arm’s length Principle (ALP) for international transactions. As per the new rule 10AB to the Income-tax Rules, 1962, the other method for determination of the arm’s length price in relation to an international transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.
The new transfer pricing rule allows taxpayers more flexibility to calculate Arm’s Length Principle for routine as well as non-routine transactions such as reimbursements and collective transfers of tangible and intangible properties. Rule 10 AB which leans toward a price based method (instead of profit based method) adds credibility to information related to commercial transactions, data on market conditions and other factors that affect the arm’s length price of a transaction.
Transfer Pricing Rule 10AB is applicable
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During uncontrolled transactions involving investment banking, logistics
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While using tenders or price quotations to establish the arm’s length principle during a loan/guarantee transaction
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When using the standard rate cards
The “other method” rule applies to Assessment Year 2012-13 and the subsequent years and is effective from April 1 2012.
There can be significant risks for the unprepared especially inintercompany transfer pricing where every transaction needs to be analyzed under a different set of circumstances. It is therefore advantageous to have a trusted partner who can provide you with exceptional assistance and ensure that you are up to date with the changing transfer pricing regulation. You can also get valuable assistance in other areas of your business like regulatory filings, sas compliance, international accounting, etc.
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