Transfer Pricing In India – A Brief Background

In order to optimise tax in high tax jurisdictions, various entities engage in structuring transactions so as to shift profits from high tax jurisdictions to low tax jurisdictions. Transfer Pricing legislations have been incorporated in the Income Tax Act, 1961 since the year 2002 to monitor, audit, regulate and curb such practices.

Transfer Pricing legislations have been incorporated in the Income Tax Act, 1961 since the year 2002 to monitor, audit, regulate and curb such practices. Transfer pricing as such has become an art and most of the times proper documentation, justification and logic for transactions would help in mitigating associated risks. We at PhygiTech are experts in providing advisory services in the realm of Transfer Pricing.

The following are the highlights of the provisions relating to Transfer Pricing:

Each assessee under the Income Tax Act, 1961 that has any international transaction with overseas-related enterprises should maintain an up-to-date record of each transaction as prescribed by the legislation.
Such records should be maintained on a contemporaneous basis, ie it should be maintained as and when the transaction with related party happens.
Such international transactions should be at “arm’s length”
There are various methods to calculate the arm’s length price, viz., resale price method, cost plus method, comparable uncontrolled price method, transactional net margin method and any other method.
At the end of a financial year, the assessee having such international transaction should obtain a report [in Form 3CEB] from a Chartered Account and file the report along with the return of Income.

How Can PhygiTech help you?

A) Helping in drafting Transfer Pricing Documentation

The Transfer Pricing legislation requires that income from International Transactions between Associated Enterprises is computed after considering the arm’s length price. The term “Arm’s-length Price” refers to the price that would be charged for a similar International Transaction between unrelated third parties. PhygiTech acts as the advisor to your company, especially in matters concerning the effective operation of your business in India. We can help you in complying with the new Transfer Pricing Regulation in the most effective way by providing appropriate solution after studying your business objectives and the nature of transactions that have been carried out.

The following step-by-step procedures explain our modus operandi.

FAR [Function performed, Assets employed, and Risk undertaken] analysis is done.
Select the appropriate method of transfer pricing and identify the parties who have been tested with the method.
Conduct a survey based on the database available from various national and international sources in order to identify the companies that can be benchmarked for the selected company and perform a financial analysis on the basis of them.
Prepare a consolidated report based on the analysis and document it appropriately.
PhygiTech, through its outsourced consultants is also specialized in representing you before the revenue authorities in relation to your transfer pricing enquiries.

The Transfer Pricing Documentation done by PhygiTech covers the various mandatory requirements under the law and includes:

Background of the Company and its Associated Enterprises
Functional Analysis to document the Functions, Risks and Assets
Industry Overview
Comparability/Benchmarking analysis to prove the Arm’s Length nature deployed of International Transactions entered between Associated Enterprises

B) Representing before Transfer Pricing Authorities

These services include representation before the designated Transfer Pricing Officers/Assessing Officers for Transfer Pricing related matters. The scope of services provided also covers representation before higher authorities like Commissioner of Income Tax etc.