TRANSFER PRICING

TRANSFER PRICING

We undertake services for framing transfer pricing strategies for our clients who have cross border transactions. A good transfer pricing policy eliminates risks of penalties in this era of growth and business transformations.

Commercial transactions between the different parts of the multinational groups may not be subject to the same market forces shaping relations between the two independent firms. One party transfers to a related party, goods or services, for a price. This price is known as "transfer price". This may be arbitrary and dictated, with no relation to cost and added value, diverge from the market forces. Transfer price is, thus, a price which represents the value of good; or services between independently operating units of an organisation. But, the expression "transfer pricing" generally refers to prices of transactions between associated enterprises which may take place under conditions differing from those taking place between independent enterprises. It refers to the value attached to transfers of goods, services and technology between related entities. It also refers to the value attached to transfers between unrelated parties which are controlled by a common entity.

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Thus, the effect of transfer pricing is that the parent company or a specific subsidiary tends to produce insufficient taxable income or excessive loss on a transaction. For instance, profits accruing to the parent can be increased by setting high transfer prices to siphon profits from subsidiaries domiciled in high tax countries, and low transfer prices to move profits to subsidiaries located in low tax jurisdiction.

Transfer pricing law in India applies to both domestic and international transactions which fall above a threshold in terms of deal value. Transfer Pricing was introduced through inserting Section(s) 92A-F and relevant Rule(s) 10A-E of the Income Tax Rules 1962 It ensures that the transaction between ‘related’ parties is at a price that would be comparable if the transaction was occurring between unrelated parties.