TRANSFER PRICING (TP)
Transfer Pricing (TP) refers to the pricing of transactions between Associated Enterprises (AEs) that are related to each other through common control, management, or capital participation, and engage in cross-border or specified domestic transactions.Unlike transactions between unrelated parties (which are negotiated at market-driven prices), related-party transactions may not reflect true market conditions, potentially leading to manipulation of profits across tax jurisdictions. Hence, Transfer Pricing regulations aim to ensure that such transactions adhere to the “Arm’s Length Principle (ALP)”, i.e., the price charged between related parties must be the same as would have been charged between independent parties in similar circumstances.
Regulatory Framework in India
India introduced Transfer Pricing regulations through Sections 92 to 92F of the Income Tax Act, 1961, read with Rule 10A to 10THD of the Income Tax Rules, 1962. These laws are aligned with OECD Guidelines and the Base Erosion and Profit Shifting (BEPS) action plans by the OECD-G20 group.
Applicability
International Transactions with AEs (no threshold – even ₹1 triggers compliance)
Specified Domestic Transactions (SDTs) – applicable if aggregate exceeds ₹20 Crores in a financial year
Failure to comply can result in adjustments to taxable income, penalties, interest, and lengthy litigation. With rapid globalization and increasing digital transactions, Transfer Pricing has become a critical area of tax scrutiny by revenue authorities in India and globally.
Key Challenges in Transfer Pricing:
- Determining and justifying Arm’s Length Price (ALP)
- Preparing robust, contemporaneous documentation
- Managing frequent audits and litigation
- Aligning tax strategy with BEPS 2.0 and Pillar 1 & 2 regulations
- Navigating cross-border compliance, safe harbour rules, and APA mechanisms
Our Transfer Pricing Practice Areas
Our firm offers end-to-end Transfer Pricing solutions aimed at mitigating risk, ensuring compliance, and aligning your intercompany pricing policies with global best practices. We combine taxation expertise, international law awareness, and robust documentation skills to support you in this highly regulated domain.
We assist in structuring your intercompany transactions in a tax-efficient and compliant manner.
- In-depth review of existing inter-company transactions
- Evaluation of functional, asset, and risk (FAR) profiles
- Drafting or restructuring of inter-company agreements in line with commercial substance
- Designing tax-effective supply chain models
- Industry-specific advisory for sectors like IT/ITES, Manufacturing, Pharma, BFSI, E-commerce, etc.
We help you meet compliance requirements under Indian law and OECD’s BEPS Action 13 through comprehensive documentation:
- Three-tier TP Documentation:
- Master File (Rule 10DA): Group-level information
- Local File (Rule 10DB): Entity-specific information
- Country-by-Country Report (CbCR): Required for global groups with consolidated revenue of ₹6,400 Crores or more
- Filing of Form 3CEB:
- Mandatory when any international transaction is entered into (even for ₹1)
- Applicable for Specified Domestic Transactions (SDTs) if aggregate exceeds ₹20 Crores
- Due Date: 31st October following the end of the financial year
- Benchmarking using recognized methods:
- Comparable Uncontrolled Price (CUP)
- Resale Price Method (RPM)
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- Profit Split Method
- Other methods prescribed under Rule 10AB
Transfer Pricing is one of the most litigated areas under Indian tax law. Our firm provides expert support in handling disputes.
- Preparing robust replies to Transfer Pricing Audit notices
- Representation before:
- Transfer Pricing Officers (TPOs)
- Assessing Officers (AOs)
- Commissioner of Income Tax (Appeals)
- Dispute Resolution Panel (DRP)
- Income Tax Appellate Tribunal (ITAT)
- Drafting objections and appeal memorandums
- Handling reassessment cases, draft assessment orders, and rectifications
To help avoid prolonged and costly litigation, we guide clients through alternative dispute resolution methods provided under Indian law:
- Advance Pricing Agreements (APA):
- Unilateral, Bilateral, or Multilateral APAs
- Valid for 5 years, with possible rollback for previous 4 years
- Reduce litigation risk and provide tax certainty
- Mutual Agreement Procedure (MAP):
- International resolution mechanism under Double Taxation Avoidance Agreements (DTAAs)
- Involves Competent Authorities of the respective countries
- Safe Harbour Rules:
- Prescribed profit margins for certain international transactions
- Applicable to sectors like IT/ITES, financial services, contract R&D, and low-risk distributors