Transfer Pricing Taxation

1. TRANSFER
PRICING
OECD Guidelines 2022

2. CONTENTS:
Background & History
Charging Section
Meaning of International Transaction
Associated Enterprises​
Arms Length Price
Software
​Documentation
Conclusion

3. BACKGROUND
3
GDP
 Tax ratio to GDP
 Corporate Tax
revenue
ECONOMIC
REFORMS 1991
FDI Inflows
MULTINATIONAL
ENTERPRISES
(MNE’S)
30 % Intragroup
RIGHT PRICE
Transfer Price
WHY TRANSFER
PRICE ?
• 100 to 200 Bn $
• Loss of Tax
revenue
• Slow Growth
• Standard of Living

4. HISTORY
4
OECD
. Improve Global
economy
. Promote World
Trade
Transfer pricing
Guidelines Issued
SECTIONS IN
INCOME TAX
ACT1962
92A. 92B,92C
YEAR 1995 INDIAN CONTEXT
Finance
Act,2001
Prevent erosion
of Taxes in
India

5. PROVISIONS OF
TRANSFER PRICING

6. SECTION 92 INCOME
TAX ACT : CHARGING
SECTION
International Transaction Between Associated
Enterprises should be at Arms Length Price

7. 7
(Ex:TSAI)
The term “International transactions” refers to transactions
between two (or more) AEs involving the sale, purchase or lease
of tangible or intangible property, the provision of services or
cost-sharing agreements, lending/ borrowing of money or any
other transaction having a bearing on the profits, income, losses
or assets of such enterprises
For a transaction to be an international transaction, it should
satisfy the following two conditions cumulatively:
1) It must be a transaction between two associated enterprises
and
2) At least one of the two enterprises must be a non-resident
Meaning of “International Transaction” (Sec 92B)

8. 8
Transactions
between 2
associated
enterprises
Atleast 1
Should be Non
Resident
Apply
Both AE’ s are
Non Residents
Apply If income
of NR is
assessable in
India
A foreign
Enterprise and
its Indian PE
Apply
and
or or

9. ASSOCIATED ENTERPRISE 92 A
9
1)SHARE
HOLDING
26% Shares or
Voting Share
2) BOARD OF
DIRECTORS
Appoints more than
half of Board of
Directors
3) LOAN
Loan Given by one
enterprise > 51% of
Total Book value of
Assets of the Other
Enterprise
4) BUSINESS
KNOW HOW
Kia Motors Vs
Hyundai
5) RAW
MATERIALS
90% of Raw
materials
TSAI Ltd

10. ARMS LENGTH PRICE 92 C
10
COMPARABLE
UNCONTROLLABLE
RESALE PRICE COST PLUS PROFIT SPLIT
TRANSACTION
NET MARGIN
Dr Reddy S
Vs.
Novartis ( Ketorol)
Purchase from AE
Transferred to
Unrelated Person .
Reduced Gross Margin
(Ind Distributors)
Cost + Markup in
Similar Transaction
( Use full when Semi
finished goods
transferred b/w AE’S)
Ex : Iron & Steel
PATENTS
PHARMA CO
( Unique &Value
Contribution)
Contribution analysis
Operating Profit Margin
VS Base
Softwares, Pharma
MNES
Ex : Infosys Vs Wipro
Most Appropriate
Method
https://read.oecd-ilibrary.org/taxation/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-2022_0e655865-en#page121

11. SOFTWARE'S
11
COMPARABILITY ANALYSIS OF TXN/ NET PROFIT
INDICATORS THROUGH EXTERNAL DATABASE
(MICHAEL PORTERS 5 FORCES – COMPETITION)/ BENCHMARKING/MARKET SHARE)
1) Prowess Tax
2) Capitaline Transfer Pricing Tax
3) TP Genie – BEPS Action point 13 ( Software)-BEPS-8,9,10 -TP
4) Coperitas
5) Thomson Reuters Tax
6) Intra Pricing
7) Royalty Range
Note : BEPS Strategies exploiting gaps and mismatch in Tax Rules

12. DOCUMENTATION ( BEPS -13)
12
LOCAL FILE( 92D)
• TXN > 1Cr
• Local Entity( MSC)
• Controlled TXN( GSICP)
• Financial Information
• Form 3CEB ( TP AUDIT)
MASTER FILE( 92D)
• Overview of Group
• Aggregate Value of
International TXN > 50 Cr
• Group Revenue > 500 cr
• Overview of MNE Group
Business, Intangibles
Policy,
• MNE Intergroup Finance.
COUNTRY BY COUNTRY
REPORT(286)
• Group revenue > 6400 cr
• HUL Case
• Tax Jurisdiction, Revenue,
• PBT, Capital, Employees,
Asset.
https://read.oecd-ilibrary.org/taxation/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-2022_0e655865-en#page552

13. SUMMARY
13
 Shifting Profits from One country to Other Country
 Transfer Price Provisions should be complied by MNES
and these serve as a template for the profit allocation of
inter-company transactions to countries
 Professionals ensure that clients are following the Right
Pricing Methods, Documentation as per Section 92D,
286.
 Compliance should be main objective of Civil Tax
Penalties.
References :
https://read.oecdilibrary.org/taxation/oecd-transKInkfer-pricing-guidelines-for-multinational-
enterprises-andtax-administrations-2022_0e655865-en#page5

14. THANK YOU
Patan Raheem
Chartered Accountant
MEMBERSHIP NO : 267634
EZRESOLVE LLP