Transfer pricing in India at a glance
|Are there specific transfer pricing regulations?||Yes|
|Submission deadline||CIT deadline|
|Submission deadline upon request||30 days|
|Annual update required||Yes|
|Official language requirements||English|
|Potential impact of penalties||One hundred percent to 300 percent of additional tax|
Indian tax law
Rules for transfer pricing in India are based upon:
- Rules 10A to 10TG of the Income Tax Rules 1962; Circular No.12 of August 23, 2001
- Circular No. 14 of December 24, 2001
- Administrative Guidelines of May 20, 2003
- Circular No. 06/2013 dated June 29, 2013
- Act Vide Finance Act 2014, dated October 1, 2014
- Central Board of Direct Taxes Notification No. 23/2015, dated March 14, 2015
Indian legislation is broadly based on the OECD Transfer Pricing Guidelines (OECD Guidelines). Five of the six methods prescribed in the legislation to compute arm’s length prices are in conformity with the OECD Guidelines. Further, the tax authorities generally recognize the OECD Guidelines and refer to them for guidance to the extent that they are not inconsistent with domestic law.
Accepted methods are:
- The comparable uncontrolled price method
- the resale price method
- the cost plus method
- the profit split method (contribution analysis or residual analysis)
- the transactional net margin method
- or such other method as may be prescribed
The CBDT has prescribed the application of a sixth method — the “Other Method” — for the computation of arm’s length prices. The sixth method could be used for unique transactions, such as intangibles or business transfers, transfer of unlisted shares, sales of fixed assets, revenue allocation/splitting, or the provision or receipt of guarantees.
Priority of methods
Rules for transfer pricing in India do not prescribe a priority of methods. Taxpayers must use the most appropriate method.
Information that should be provided:
- Ownership structure
- Profile of the multinational group
- Business description
- The nature and terms (including prices) of international transactions
- Description of functions performed, risks assumed and assets employed
- Record of any financial estimates
- Record of uncontrolled transaction with third parties and a comparability evaluation
- Description of methods considered
- Reasons for rejection of alternative methods
- Details of transfer pricing adjustments
- Any other information or data relating to the associated enterprise which may be relevant for determination of the arm’s length price
Rules for transfer pricing in India do not prescribe a specific language, However, generally english is preferred.
Documentation must be prepared by the due date for filing the annual income tax return.
Deadline to submit upon request
Documentation must be submitted within 30 days of a request (a one-time extension of 30 days is available upon request).
Advance Pricing Agreements
Rules for transfer pricing in India provide for an option to obtain for unilateral, bilateral, and multilateral Advance Pricing Agreements.
The term cannot exceed five consecutive years.
As of March 2015, rules for transfer pricing in India provide for roll back opportunities. Roll back is available in any previous year that falls within the period of four previous years, preceding the first previous year covered in the APA.
For the application of roll back of the agreement it is necessary that the international transaction is the same as the international transaction to which the regular APA applies. Furthermore, for the roll back years the agreement may provide the determination of the arm’s length price or may specify the manner in which the arm’s length price shall be determined.
One hundred percent to 300 percent of additional tax. The penalty for failure to maintain or furnish prescribed information and documentation, or failure to report a transaction or maintain or furnish incorrect information or document is 2 percent of the value of the international transaction or specified domestic transaction. The penalty for failure to furnish a report from an accountant with the return is INR 0.1 million.