TransPrice flagged off a knowledge circle amongst its members, clients and associates; the purpose of which is to spread awareness about the transfer pricing issues in the industry; to value add by representing the issues discussed in the forum at various larger forums and ultimately provide plausible solutions. I hereby invite the industry members who are affected by Transfer Pricing and International taxation to join the group. Interested professionals can write to me on akshaykenkre@transprice.in This is purely a knowledge awareness session and not a business initiative. Thanks a lot Akshay Kenkre

1. Developments in Transfer
Pricing
TransPrice Knowledge Alliance
Akshay Kenkre
Managing Partner

2. Outline
1. Our Journey till date
2. Introduction to ‘TransPrice Knowledge Alliance’
3. Agenda for FY 2014-15
4. TP Overview including documentation
5. Recent developments
6. Summary of key assessment issues – Topic for future discussions
7. Synthesis Group
8. Conclusion and vote of thanks
2

3. 3
Journey till date

4. Our Journey
4
 Established on 03-03-13
 Objective: To value add to the industry with specialist knowledge
 Conducted first annual event ‘INDIA Transfer Pricing Summit – 2013’
 Stress on subject matter expertise and extensive research
 Research paper on ‘Intangibles – with emphasis on marketing intangibles’
 ‘TransPrice Weekly’ : An Initiative to keep industry updated
 Trained PAN India CAG team
 100% success results at representations

5. 5
TransPrice Knowledge
Alliance

6. TransPrice Knowledge Alliance
6
Vision :
1. Build an advocacy group in Transfer Pricing, to represent the industry at
large, at appropriate forums
2. Spread awareness and share knowledge on Transfer Pricing
3. Update industry on real time basis
4. Experience sharing from the assessment and litigation
5. Arrive at and suggest plausible solutions for Transfer Pricing issues
6. Offer Networking platform for the benefit of members
TransPrice’s client automatically becomes member of the forum and special
invitees to INDIA Transfer Pricing Summit- 2014, to be held on 8th August

7. 7
Agenda – FY 2014-15

8. Agenda- FY 2014-15
8
• Frequency of Meeting : Tri-annual ( July 14, November 14, March 15)
• Topics of discussion to be considered in the year:
• Technical issues like search process, comparability, aggregation of
transactions, operating/ non operating income and expenses,
Economic adjustments
• Practical and industry issues like customs- TP convergence, Location
savings, intangibles, royalties, guarantee commissions, interest rates,
marketing support, cost sharing, share valuation
• Business specific like Pharmaceutical, R&D, Iron and Steel,
Chemicals, Media and entertainment, Heavy machinery,
Automobiles, Jewelry and Gems
• Amendments, New legislations , case laws

9. Today’s Agenda
9
• General Transfer Pricing overview
• Understanding Transfer Pricing documentation
• Discussion on latest developments in Transfer Pricing
• Topics of discussion for future meetings and fixing on the dates

10. 10
TP Overview

11. Transfer Pricing - A Snapshot
11
 Worldwide is one of the most complex and challenging tax domain
 Anti – Avoidance law
 Leads to Double Taxation
 Impacts every element of supply chain
 India accounts for approx 70% of world TP litigation
 One of the countries having strong view on TP regulations
 Direct impact on the companies Effective Tax Rate (ETR)
 Penalty implications

12. Trends in TP Assesments in India
12
0
10000
20000
30000
40000
50000
60000
70000
80000
Adjustment (Rs Crores)
Years of Transfer Pricing Assessment
High adjustments on account of issues like corporate guarantees, marketing intangibles, share transfer
239 337 471 84
670
813
1138
1343
3200
Number of cases

13. Objective
13
Maximization
MNE
Maximize profit
subject to Arms
length principle
Maximize overall
profits as compared
to how an
independent parties
would operate
Maximize group
profits by diversifying
functions around
locations
Revenue Authority
Profit maximization
by using lowest /
highest possible ALP
Balancing of taxes
and investment/
growth in a country
Direct and short term
vs. Long term
benefits and growth
TP is anti avoidance
law and not basis of
charge
• Appropriate Documentation
• Effective and risk evaluated
structuring and diversification
• Effective tax supply chain
management
`
Profit Revenue

14. Fixing TP vs. Testing TP
14
TP Process
Fixing Transfer Prices Testing Transfer Prices
Includes:
• Planning Stage
• Understanding the FAR and
characterizing the entity
• Setting up of TP policy and
agreements (MM or CP)
• Active negotiations with AE for
price setting
• Setting Transfer Prices
• Documenting is the key
Includes:
• Post year end activity
• Confirming and auditing
FAR, policies, agreements
• Compliance as per Tax laws
• Benchmarking/ Economic analysis
• Testing methods can be different
than fixing methods
• Maintenance of TP Study before
due dates

15. Documentation – Fixing stage
15
• Transfer Pricing Policies including price setting mechanism
• Intercompany agreements
• Negotiation mails and discussions
• If a budgeting method is followed, then such procedure
• Contemporaneous documentation
• Documentation in Rule 10D format if international transactions exceeds Rs
1 crore
• Limit of Rs 15 crore – only for reference to the TPO, below 15 crores- AO
bound to do transfer pricing assessment
• The limit is set only through an internal circular and it is not a rule
• Selection and reference to TPO is purely on risk basis and not amount of
international transaction

16. Documentation – Testing stage
16
 Transfer Pricing is all about comparability and documentation
 Transfer Pricing Documentation, including:
 Identification of international transaction and Industry Analysis
 Functional , Risk and Assets Analysis
 Economic Characterization
 Economic Analysis ( Selection of MAM – Comparability – Arms Length)
 Conclusion on ALP
 Preparation of preliminary benchmark studies
 Transfer Pricing Accountant’s report – Form 3CEB
 Transfer Pricing report drafting and generating back up documentation
 Due date for maintenance and filing for 31 March 14 is 30 November 2014

17. Compliance and Documentation
17
1 Apr 13 31 Mar 14 30 Nov 14 30 Sep 15 31 Jan 18 31 Mar 24
Beginning
of Tax year
Close of
Tax year
Due date of
maintaining TP
documents and
Accountant’s report
Limitation of initial
assessment
Limitation of
completing TP
assessment
Requirement until
which FY 2013-14
documents required to
be maintained
Timeliness

18. 18
Recent developments

19. Definition of International Transaction
19
Retrospective and clarificatory amendment (w.r.e.f 2002) to include transactions :
• Purchase , sale , transfer, lease use of tangible property
• Purchase, sale, transfer, lease, use of intangible property
• Financing including loan, guarantee, securities, debts, advance payments etc
• Any type of provision of service including market
development, service, administration etc
• Structuring , restructuring, reorganization (covers issue of shares), irrespective of
the fact that the same has bearing on profits or not
Further the definition of intangible property has been elaborated to include all and
any types of rights having a commercial backing

20. Specified Domestic Transactions
20
 Genesis to the Glaxo case
 Allowance for expenditure or allocation of cost or expense or any income related
to SDT to be computed with regard to arm’s length price (‘ALP’)
 Applicable from Financial Year (‘FY’) 2012–13 onward
 SDT defined as any of the following transaction (s) that are not international
Transactions:
Payments to related parties as defined under section 40A (2) (b) of the Income
Tax Act, 1961 (‘Act’)
Tax holiday-related transactions (eligible business-
10AA, 80IA, 80IB, 80IC, 80IE, 80ID) – Both Income as well as expenditure needs to
be tested
 Tax payers to maintain appropriate TP documentation
 Monetary threshold of INR 5 Crores in aggregate

21. APA introduction- Historic Scenario
21
 Aggressive Positions adopted by Transfer Pricing Office
 Ignored FAR, business, industry and economic realities
 Adoption of standard industry wise position:
 IT/ ITES industry : 25%- 35% cost plus mark up
 Contract R&D : 30% cost plus mark up
 Clinical Trials: 30% cost plus mark up
 Marketing Intangibles: cost plus/ profit split method
 Loan Transactions: use of Indian loan rates
 Corporate Guarantees: adhoc rate without credit analysis

22. APA introduction-Litigation Roadmap
22
Litigation Options
DRP/ CIT (A) ITAT High Court
Supreme
Court
APA
Defensive Progressive
Transfer Pricing is the biggest challenges faced by MNCs in India

23. Finance Act, 2012 – APA Introduced
23
2010
• APA introduced in proposed DTC, 2010
• The implementation of DTC itself failed
Feb 2012
• Much awaited APA was then introduced in the Finance Act, 2012
• Basic Framework provided in the Finance Act, 2012
Aug 2012
• Detailed APA Rules introduced

24. APA Regulations
24
 Insertion of Rule 10F to 10T and Rule 44GA
 Applicability : All persons, undertaking or planning to undertake international
transaction
 Types of APAs
APA
Unilateral
APA
Bilateral
APA
Multilateral
APA
Solely between taxpayer and tax
authority
Mutual agreement between CA of
two tax administrations
More than one Bilateral
agreement

25. APA procedure
25
 Application of APA: Entered by CBDT with taxpayer, after approval of CG
Taxpayer
APA Team ( APA Directors &
Officers)
DG International
Taxation
Competent
Authority
Board Approval
Competent
Authority
Associated Enterprise (AE)
Experts from
Economics, sta
tistics, law etc.
INDIA Outside INDIA

26. APA Process
26
Phase 1
Decide to enter the APA (feasibility analysis)
Phase 2
Prefilling consultation with the Tax Authorities
Phase 3
APA Application
Phase 4
Negotiation Stage
Phase 5
Finalization of APA
Phase 6
Furnishing of Annual Compliance Report
Timing of application:
 APA for transactions in
FY 2014-15 :
Application to be
made before 1 April
2014
 Incase of other
transactions ( new or
proposed
transactions) , any
time before
undertaking the
transactions

27. Tolerance Band
27
 FA 2012 provided that benefit of the tolerance band will not be available
if the difference between ALP and International Transaction is greater
than +/-5%
 April 2013, the tolerance band was revised to +/-3% of transactions price
and +/-1% of transaction price in case of wholesale trader

28. Other Amendments
28
 TPO can question and audit any transaction that is not reported by the
taxpayer
 Industry visits by the TPO permitted to check operations and
contemporaneous documentation
 Penalty @ 4% of international transactions ( earlier was 2%)
 Penalties applicable for SDT transactions
 Applicability of 6th Transfer Pricing Method Rule 10AB – Any other
method : includes transactions of unique nature for which application of
other 5 method is difficult. Valuations, guarantee methods etc.
 E- Filing of Form 3CEB

29. 29
Key assessment issues

30. Key issues – Topics for future discussions
30
 Marketing Intangibles ( advertising, marketing and promotional
expenditure)
 What are marketing intangibles
 Guidance around the same
 LG case
 Research and Development services
 Importance of allocation of FAR
 Importance of function vis-à-vis risks
 Identification of risk bearing entities
 Transfer of intangibles
 Circular 5 & 6 issues by CBDT

31. Key issues – Topics for future discussions
31
 Management cross-charge
 Concept of intra group services and management fees
 Importance of policies and agreements
 Documentation to justify benefits rendered and cost allocated
 Financial Transactions
 Provision and receipt of loans
 Provision and receipt of corporate guarantee
 Issue of share capital and transfer of shares
 Location savings

32. Key issues – Topics for future discussions
32
 Other Issues:
 Data availability
 Internal and external comparable
 Loss making scenario
 Use of custom data
 Secret comparables
 Economic adjustments like working
capital, risks, depreciation, capacity
 Cost allocations
 Penalties
 Sourcing support and indenting
 Benchmarking royalties

33. 33
Our Group

34. Our Group (1 of 2)
34
Intellivate Capital, provides an entire spectrum of services in Investment
Banking, Project Management, Fund Raising and Management
Aurum Capital handholds the SME sector with structured and unstructured
debt to finance their operational activities through cash credit, working
capital and term loans
Manish Modi & Associates is a Chartered Accountancy firm providing
services in areas of Audit and Assurance, Compliance, Regulatory and
Consultancy including finance and tax consultancy

35. Our Group (2 of 2)
35
TransPrice Solutions is a specialist organization, with core focus on Transfer
Pricing. It provides expert advisory, representation and compliance solutions
in Transfer Pricing arena
Brianna Knowledge Resources is a corporate training platform in the field of
finance. It is a creation of industry professionals who bring in a synergy of
knowledge bases and real time experiential learnings to the training platform
Pinnacle Education is a educational training institute molding thousands of
aspirants up to Final CA

36. 36
Contact Us

37. 37
CA. Akshay Kenkre
Managing Partner
TransPrice Solutions LLP
Address:
Gita Building, 2nd floor,
Plot no. 92, Next to HP Petrol Pump,
Sion (East),
Mumbai - 400022
Tel : 022 - 2409 3737/ 409 7171
Mobile : + 91 9819245424
Email : akshaykenkre@transprice.in
info@transprice.in