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Domestic Transfer Pricing

Domestic Transfer Pricing

Journey towards Domestic TP in India

• Partially existent way before introduction of TP

Expenditure in respect of which payment has been made to related parties referred to in Section 40A(2)(b) can be disallowed if it is excessive having regard to the fair market value

Computation of tax holiday of eligible undertakings based on fair market value of goods / services, in case of transactions with other units in the same legal entity and based on ordinary profits in case of transactions with closely connected persons

• Supreme Court in the case of Glaxo Smith Kline Asia (P) Ltd. suggested in its order that TP regulations be made applicable where fair market value needs to be assigned to transactions between domestic related parties

• In response, the Government introduced “Domestic Transfer Pricing”

Functional analysis

The revenue/ profits generated by a company are attributable to

• Functions performed;

• Assets deployed and

• Risks assumed in its business operations

A functional analysis facilitates the characterization of related parties in respect of a specific transaction taking into account their functions, assets and risks and assists in establishing a degree of comparability with similar transactions in uncontrolled conditions

• FAR is a fact finding process covering inter alia: – Group Overview

– Company Overview and Product Profile

– Organisation Structure (Roles)

– Group Business Strategy

– Industry Overview

– Understanding of value-chain (FAR)

– Agreements

– Public Documents (Annual Report, Website)

 Domestic Transfer Pricing

Domestic Transfer Pricing

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