As per Section 92 to 92F of the Income Tax Act 1961, transfer pricing is an accounting practice that refers to the setting of prices of goods and services (including those linked with intellectual property like research, patents and royalties) that are exchanged among the subsidiary, affiliate or commonly controlled companies or legal entities that are part of the same larger enterprise. It allows for tax savings for the companies, though tax authorities may contest their claims.
Purpose of Transfer Pricing
- Generating separate profit for each of the divisions and enabling performance evaluation of each division separately
- Transfer prices would affect not just the reported profits of every center, but would also affect the allocation of a company’s resources (Cost incurred by one center will be considered as the resources utilized by them)
Later the Finance Act, 2001 substituted Section 92 of the Income Tax Act, 1961 by new sections 92 and 92A to 92F. These new provisions require commercial outcomes arising from international transactions between associated enterprises to be consistent with the arm’s length principle.
Income Tax Act mandates the company that Arm’s Length Price (ALP) is to be calculated using one of the following methods:
How we help our clients in this matter?
We provide full strength professional services on activities relating to Transfer Pricing as according to ALP pronounced by the prescribed authorities in this respect. We assist you in the following aspects of Transfer Pricing:
- Planning, Review & Evaluation of Transfer Pricing Mechanism
- Adherences and Compliance of Transfer Pricing Regulations and Provisions as according with present Legislations
- Representation before the competent authorities
- Expert tax planning with a flexible approach to implementation of methodologies of transfer pricing
- Consultancy services on Potential threats interrelated with the existing legislation and the policies of the organization to avoid Taxation & legal Consequences
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