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Transfer Pricing in India

  • Compliance review Monthly/Quarterly & Annually
  • International Transfer Pricing & Depository Participants compliance
  • Compliance of Foreign Exchange Management Act
  • Management Report on internal control system

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What does transfer pricing mean?

A different transfer pricing code as set out in the Income Tax Act (Sections 91 to 92F) that encompasses intra-border transactions within a community and defined domestic transactions. Therefore, with the implementation of transfer pricing, transfer pricing has become the first and most significant foreign tax issue that concerns purchases of multinationals operating in India.

In Which format, reporting shall be done?

  • Transfer pricing reports and country accounting provide a model for multinational corporations to report periodically on each tax authority in which they operate. Such report was called Country by Country Report (CBC Report).
  • Multinational companies are required to implement the Reporting package known as CBC Reporting standard that includes the model law that may be used by countries mandating the parent agency of a multinational corporation to apply a CBC document containing the global distribution of profits taxes paid and certain operation of economic indicators within its jurisdiction and three model qualified authority..

What are the procedures for Country to Country Reporting?

(OCED) Organisation for Economic Co-operation and Development’s Action 13 points out a policy statement on the introduction of transfer pricing information and reporting using country-by-country format.

Timing : Need for CBC Reporting

  1. For the Fiscal year of 12 months beginning from January 1, The Multinational entities are required to file the Country-By-Country report.
  2. 2. The key component of the constitutional requirement includes the primary parent body of the Multinational Enterprise community to send the CBC document on a timely basis.
  3. The fiscal year of the Multinational Corporation applies to the annual reporting period for the purposes of the financial statements and not to taxable years.

Which Multinational Enterprise are required to file Country-By-Country Report

Country-By-Country Report is required to be submitted by all Multinational Enterprises excluding the following:

Multinational Enterprises group having annual consolidated revenue less than or equal to 750 million in the immediately preceding fiscal year in domestic currency are exempted from such Country-by-Country Reporting.

What are the substantial conditions for obtaining and using Country-By-Country Report?

In order to obtain and use Country-By-Country reporting, countries participating in OECD/G20 Base Erosion Profit Shifting project are required to agree to the below mentioned conditions:

Secrecy

Jurisdictions will preserve and implement legal protection against reported data. Such safeguards would cause the secrecy of the Country-By-Country document to be preserved, which is equal to the security that would be provided to the nation under the terms of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters; a tax agreement that follows the internationally accepted quality of data upon demand as examined by the Global Forum on Disclosure and Exchange of Information for Tax Purposes CBC Report Model as it allows jurisdiction to evaluate large-level transfer pricing threat and also to evaluate other BEPS relevant threat.

Uniformity

Generic model must be used by the Jurisdictions as set out in Chapter V of Annex III of the Transfer Pricing Guidelines, which allows the jurisdiction to neither seek additional information nor to receive the required information as set out in Annex III.

Adequate Use

Jurisdiction will utilized the information in the best manner received from the MNE in the CBC document model to evaluate the high-level transfer pricing problem and also to determine the BEPS-related threats.

Complete Follow up in the event of transfer Pricing

Since transfer pricing enforcement is primarily a matter for senior tax professionals, the burden for carrying out inter-company payments is distributed across a wide range of corporate operations and remote offices..

The transfer pricing process includes many hands on tariffs, divisional managers, shared common utilities, information technology, etc.

In the complete lack of unified supervision, unsafe conditions can create at every point of the transaction, such as uncertainty of responsibility, manual or informal practices, accounting policies, data mismatch, inefficient reconciliation, etc. Such circumstances lead the Multinational Enterprises to significant risk, heightened compliance requirements, inefficiencies that may contribute to irritation and a deterioration of the implementation chain.

Complete Follow up in the event of Executing Transfer Pricing

As the completion of the transfer pricing cycle is a lengthy process, as it requires a lot of effort and time to analyze multiple internal processes, reviewing the costs of your system, staff and software but they have also some advantages which are mentioned below:

  • To fulfill the statutory requirements in a timely and efficient manner;
  • Reducing the risk of audit
  • Sustaining the company's internal stance on a smarter way
  • Standardized data process and transfer pricing calculation criteria
  • Rational Information Technology procedure and system
  • Mitigating indirect compliance cost

Financial services

Financial services experiencing more obstacles when working due to global financial developments, emergencies, budgetary constraints from governments around the world, as well as evolving national and international legislation and the need for capital requirements.

Since it is fairly evident from the analysis carried out by the tax authorities of transfer pricing payments, it is very obvious that financial services are in general a dynamic industry, requiring international improvements in the regulations on interest tax deductions, new regulatory and legislative innovations.

Global Coordinated Documentation

  • OCED's Revised Transfer Pricing Regulations and Compliance Standards would substantially increase the Multinational Enterprise’s enforcement workload over the coming years.
  • When transfer pricing is no longer an enforcement practice, but includes tactical revenue risk management regulation.
    1. In order to submit four tier documentation, the Group of Multinational Enterprise’s will be required:
    2. Master File
    3. Local File
    4. Country by Country reporting
    5. Returns of Local Information
  • As the tax authorities follow the OCED strategy, which will be a crucial process to determine that the information presented regularly to the tax authorities are harmonized and standardized.
  • Worldwide documentation will thus appear to increase the burdensome process internationally, which will exert pressure on corporations to preserve effective and consistent transfer pricing documentation.
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