Transfer Pricing

A PROJECT REPORT
ON
TRANSFER PRICING
AT
BOMBAYWORKS SOFTWARE SOLUTIONS PRIVATE LIMITED, MUMBAI.
BY
VINIT ANIL SADANI
SUBMITTED TO
“SAVITRIBAI PHULE PUNE UNIVERSITY”
IN PARTIAL FULFILLMENT OF THE REQUIREMENT
FOR THE AWARD OF THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
UNDER THE GUIDANCE OF
DR. PUJA BHARDWAJ
THROUGH
DR.VIKHE PATIL FOUNDATION’S
PRAVARA CENTRE FOR MANAGEMENT RESEARCH AND DEVELOPMENT
PUNE-411016
(2013-2015)

i
ACKNOWLEDGEMENTS
I am overwhelmed in all humbleness and gratefulness to acknowledge all those
who have helped me to put the ideas, well above the level of simplicity and into
something concrete.
I am extremely grateful to my guide, Dr. Puja Bhardwaj, Associate Professor,
Dr. Vikhe Patil Foundation’s Pravara Centre for Management Research and
Development, Pune who provided wholesome direction and support to me at
every stage of this work. It was her invaluable insight, critical comments and
suggestions, which helped me to bring this work to completion. Her wisdom,
knowledge and commitment to the highest standards inspired and motivated
me.
I express my gratitude to Prof. Divya Lakhani, Academic Coordinator,
Dr. Vikhe Patil Foundation’s Pravara Centre for Management Research and
Development, Pune for the impetus she gave me in this academic endeavour
and for the encouragement and words of wisdom she injected in me.
I owe sincere and earnest thanks to Mr. Jatin Joshi, Finance Officer,
Bombayworks Software Solutions Pvt. Ltd. for giving me all the valuable
information, knowledge and deeper insights into the subject.
I am thankful to my teacher Mr. Venkatesh Iyer, who introduced me to the
topic in an informal manner to understand it easily.

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I am also grateful to Dr. Manoj Narwade, Director, Dr. Vikhe Patil
Foundation’s Pravara Centre for Management Research and Development for
his encouragement and support.
My special thanks are extended to my Parents who have always encouraged me
to do big things in life by having confidence in me at each and every moment.
Vinit Anil Sadani

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DECLARATION
I hereby declare that the project titled “TRANSFER PRICING” is an original piece
of research work carried out by me under the guidance of Dr. Puja Bhardwaj. The
information has been collected from genuine and authentic sources. The work has been
submitted in partial fulfilment of the requirement of the degree of Master of Business
Administration to Savitribai Phule Pune University.
Date: 26th
September 2014.
Place: Pune Vinit Anil Sadani

iv
INDEX
Sr. No. Contents Page No.
Acknowledgements i
Declaration iii
Index iv
List of Tables vii
List of Figures viii
Executive Summary ix
Chapter 1 Introduction
1.1 Meaning of Transfer Pricing 1
1.2 Transfer Pricing in India 1
1.3 Methods of Transfer Pricing 2
1.4 Associated Enterprise 4
1.5 Special issues related to Transfer Pricing 6
Chapter 2 Company Profile
2.1 Founders & Promoters 11
2.2 Vision and Mission 12
2.3 Products Offered 13

v
2.4 Competitors 18
2.5 Financials 20
2.6 Some Projects 21
2.7 SWOT Analysis 24
2.8 Association of Bombayworks Software Solutions Pvt
Ltd
26
Chapter 3 Statement of Problem 31
Chapter 4 Research Methodology
4.1 Objectives of the Study 32
4.2 Significance of the Study 32
4.3 Scope of the Study 32
4.4 Data Collection 33
4.5 Tools of Analysis 33
4.6 Limitations of the Study 33
Chapter 5 Data Analysis & Interpretation
5.1 Transfer pricing methods 35
5.2 Calculation of Transfer Price 38
5.3 Difference in Pricing 49
5.4 Summary of Interpretations 50

vi
Chapter 6 Learning Outcomes
6.1 Recommendations 51
6.2 Conclusion 51
6.3 Learnings 52
6.4 Contribution to the organisation 53
Bibliography 54
References 56

vii
LIST OF TABLES
2.1 Equity Share Capital of Bombayworks Software Solutions Pvt
Ltd.
20
2.2 Income statement for 2011-12 & 2012-13 20
2.3 Calculated Ratios for 2011-12 & 2012-13 21
2.4 Association between two companies 26
5.1 Details of Other Expenses 2011-12 38
5.2 Details of Total Expenses 2011-12 40
5.3 Details of Total costs per hour for 2011-12 41
5.6 Details of Total cost per hour 2012-13 45
5.7 Various Projects in 2012-13 46
5.8 Projects with their Billing Amounts 48

viii
LIST OF FIGURES
2.1 SWOT Analysis of Bombayworks Software Solutions Pvt Ltd 24
5.1 Other Expenses 2011-12 39
5.5 Number of Hours for different Projects 47

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EXECUTIVE SUMMARY
Bombayworks Software Solutions Pvt Ltd India and Sweden are two associated companies
that deal in software and mobile application development services. Both of the companies
are dependent on each other and work like a team. The website also is the same for both
the companies; it is just the language which changes from Swedish to English.
These companies trade between themselves to serve the main clients and hence there are
some important foreign transactions which they carry out throughout the year. Hence, the
intercompany transactions are valued using the concept of transfer pricing. Case Study
method has been used to analyse the concept of Transfer Pricing. The Data Analysis of this
company is done on the basis of the balance sheet provided by the company’s finance head.
The key point is the costing of the service and how it is either sold or it is transferred to
BW Sweden for reselling it to the Swedish clients.
This project helps to study that if there are associated companies across the border then
how the dealings of capital, investments and the services are done so that both the units are
benefited.
It was found that Time and Material Pricing method is adopted by the company for the
internal transactions between them.

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1.1 Meaning of Transfer Pricing
The term “Transfer Pricing” refers to inter-company pricing arrangements between
related business entities and commonly applies to inter-company transfer of services
and tangible / intangible properties.
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 another goods or services, for a price. That
price is known as “transfer price”. This may be arbitrary or dedicated, 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 organization. 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 transfer 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.
Suppose a company X purchases goods for ` 100 and sells it to its associated
company Y in another country for ` 200, who in turn sells in the open market for
` 400. Had X sold it direct, it would have made a profit of ` 300. But by routing it
through Y, it restricted it to ` 100, permitting Y to appropriate the balance. The
transaction between X and Y is arranged and not governed by market forces. The
profit of ` 200 are, thereby, shifted to the country Y. The good is transferred on a
price (transfer price) which is arbitrary or dictated (` 200), but not on the market price
(` 400).
1.2 Transfer Pricing in India
In India, detailed provisions relating to transfer pricing had been introduced by the
Finance Act, 2001 in order to facilitate the computation of reasonable, fair and
equitable profits and tax in India in the case of businesses carried on by multinational
companies. Simply put, Transfer Pricing is the process of adjusting the prices of

2
cross-border transactions between related / associated parties. The transfer pricing
provisions generally follow the OECD guidelines relating to the same. However, there
are certain fundamental differences in the Indian provisions require the computation
of an ‘arm’s length price’ as against the internationally accepted norms of arm’s
length range. Further the arm’s length price is to be computed as the ‘arithmetic
mean’ of comparable results. A variance of not more than 3% of the mean may be
opted for.
The provision of Section 92 of the Income Tax Act, 1961 provides that the price of
any transaction between associated enterprises, either both of whom are non-resident
for tax purposes(‘International Transactions’), shall be computed having regard to the
arm’s length principle. The recent amendment of the Finance Act, 2012 brings
“specified domestic transactions” also under the purview of Transfer Pricing.
1.3 Methods of transfer pricing
Arm’s Length Price method
“Arm’s Length Price” means a price which is applied or proposed to be applied in a
transaction between persons other than associated enterprises, in uncontrolled
conditions.
A very important aspect of the concept of Transfer Pricing is the process of
determining the arm’s length price. The Central Board of Direct Taxes (CBDT) has
prescribed five methods for determining the arm’s length price.
I. Comparable Uncontrolled Price Method
II. Resale Price Method
III. Cost plus Method
IV. Comparable Profits Method or (CPM)
V. Profit‐split methods (PSM).
Comparable Uncontrolled Price (CUP)
The CUP method compares the price charged for a property or service transferred in a
controlled transaction to the price charged for a comparable property or service
transferred in a comparable uncontrolled transaction in comparable circumstances.

3
Resale Price Method (RPM)
The resale‐price method is used to determine the price to be paid by a reseller for a
product purchased from an associated enterprise and resold to an independent
enterprise. The purchase price is set so that the margin earned by reseller is sufficient
to allow it to cover its selling and operating expenses and make an appropriate profit.
Cost plus (C+, CP)
The cost‐plus method is used to determine the appropriate price to be charged by a
supplier of property or services to a related purchaser. The price is determined by
adding to costs the supplier incurred an appropriate gross margin so that the supplier
will make an appropriate profit in the light of market conditions and functions he or
she performed.
Profit based methods
Two classes of transactional profit methods are recognized by the USA Section 482
IRS regulations and the OECD Guidelines– they are (the class of)
profit‐comparison methods (Transactional Net Margin Method or TNMM /
Comparable Profits Method or CPM) and (the class of) profit‐split methods (PSM).
(a)Transactional Net Margin Method (TNMM/CPM)
These methods seek to compare the level of profits that would have resulted from
controlled transactions with the return realized by the comparable independent
enterprise. The TNNM compares the net profit margin realized from the controlled
transactions with the net profit margin realized from uncontrolled transactions.
(b) Profit split methods (“PSM”)
Profit‐split methods take the combined profits earned by two related parties from one
or a series of transactions and then divide the profits using a defined basis that is
aimed at replicating the division of profits that would have been anticipated in an
agreement made at arm’s length. Arm’s length pricing is therefore derived from both
parties by working back from profit to price.

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Recently, the CBDT has prescribed another method regarded as “other method”
potentially to cover transactions involving intangibles and business restructurings for
which the above methods may not be most appropriate.
The choice of the appropriate method is determined with respect to the nature and
class of transaction, the classes of associated persons, the functions performed by
them and other relevant factors.
1.4 Associated Enterprise
Two enterprises are considered to be associated if there is direct/indirect participation
in the management or control or capital of an enterprise by another enterprise or by
same persons in both the enterprises.
In determining whether there is participation in management or control, various
factors are taken into consideration including:
2 Direct/indirect shareholding having 26% or more of voting power.
3 Advancing of loans of 51% or more of total assets.
4 Appointment of more than 50% of the board of directors.
5 Goods manufactured are sold under influenced prices.
6 Dependence on IPRs owned by either party, etc.
Meaning
92A. (1) for the purposes of this section and sections 92, 92B, 92C, 92D, 92E and
92F, “associated enterprise”, in relation to another enterprise, means an enterprise—
(a) Which participates, directly or indirectly, or through one or more
intermediaries, in the management or control or capital of the other enterprise; or
(b) In respect of which one or more persons who partici-pate, directly or
indirectly, or through one or more intermedi-aries, in its management or control or
capital, are the same persons who participate, directly or indirectly, or through one or
more intermediaries, in the management or control or capital of the other enterprise.
(2) for the purposes of sub-section (1), two enterprises shall be deemed to be
associated enterprises if, at any time during the previous year,

5
(a) one enterprise holds, directly or indirectly, shares carrying not less than
twenty-six per cent of the voting power in the other enterprise; or
(b) any person or enterprise holds, directly or indirectly, shares carrying not less
than twenty-six per cent of the voting power in each of such enterprises; or
(c) a loan advanced by one enterprise to the other enter-prise constitutes not less
than fifty-one per cent of the book value of the total assets of the other enterprise; or
(d) One enterprise guarantees not less than ten per cent of the total borrowings
of the other enterprise; or
(e) more than half of the board of directors or members of the governing board,
or one or more executive directors or execu-tive members of the governing board of
one enterprise, are ap-pointed by the other enterprise; or
(f) more than half of the directors or members of the governing board, or one or
more of the executive directors or members of the governing board, of each of the two
enterprises are appointed by the same person or persons; or
(g) the manufacture or processing of goods or articles or business carried out by
one enterprise is wholly dependent on the use of know-how, patents, copyrights,
trade-marks, licenses, franchises or any other business or commercial rights of similar
nature, or any data, documentation, drawing or specification relating to any patent,
invention, model, design, secret formula or process, of which the other enterprise is
the owner or in respect of which the other enterprise has exclusive rights; or
(h) ninety per cent or more of the raw materials and con-sumables required for
the manufacture or processing of goods or articles carried out by one enterprise, are
supplied by the other enterprise, or by persons specified by the other enterprise, and
the prices and other conditions relating to the supply are influ-enced by such other
enterprise; or
(i) the goods or articles manufactured or processed by one enterprise, are sold to
the other enterprise or to persons speci-fied by the other enterprise, and the prices and
other conditions relating thereto are influenced by such other enterprise; or

6
(j) Where one enterprise is controlled by an individual, the other enterprise is
also controlled by such individual or his relative or jointly by such individual and
relative of such individual; or
(k) Where one enterprise is controlled by a Hindu undivided family, the other
enterprise is controlled by a member of such Hindu undivided family or by a relative
of a member of such Hindu undivided family or jointly by such member and his
rela-tive; or
(l) where one enterprise is a firm, association of persons or body of individuals,
the other enterprise holds not less than ten per cent interest in such firm, association of
persons or body of individuals; or
(m) There exists between the two enterprises, any relation-ship of mutual
interest, as may be prescribed.
1.5 Special issues related to Transfer Pricing
(i) Documentation requirements
1.6.1 Generally, a transfer pricing exercise involves various steps such as:
 Gathering background information;
 Industry analysis;
 Comparability analysis (which includes functional analysis);
 Selection of the method for determining arm’s length pricing; and
 Determination of the arm’s length price.
1.6.2 At every stage of the transfer pricing process, varying degrees of documentation
are necessary. One pressing concern regarding transfer pricing documentation is the
risk of overburdening the taxpayer with disproportionately high costs in obtaining
relevant documentation or in an exhaustive search for comparable that may not exist.
Ideally, the taxpayer should not be expected to provide more documentation than is
objectively required for a reasonable determination by the tax authorities whether or
not the tax payer has complied with the arm’s length principle. Cumbersome
documentation demands may affect how a country is viewed as an investment

7
destination and may have particularly discouraging effects on small and medium sized
enterprises.
1.6.3 Broadly, the information or documents that the taxpayer needs to provide can be
classified as
(i) Enterprise‐related documents (for example the ownership / shareholding pattern of
the taxpayer, the business profile of the MNE, industry profile etc.);
(ii) Transaction‐specific documents (for example the details of each international
transaction, functional analysis of the taxpayer and associated enterprises, record of
uncontrolled transactions for each international transactions etc.), and
(iii) Computation‐related documents (for example the nature of each international
transaction and the rationale for selecting the method for each international
transaction, actual computation of the arm’s length price, factors and assumptions
influencing the determination of the arm’s length price etc.)
1.6.4 Furthermore, the domestic legislation of some countries requires
“contemporaneous documentation”. The Oxford Dictionary defines the term
“contemporaneous” as “existing or occurring in the same period of time”, so that such
documentation cannot be created after the transaction is affected. Contemporaneous
documentation maintained in accordance with such obligations should have the
characteristics of completeness, accuracy and timeliness.
(ii) Intangibles
1.6.5 Intangibles, (literally meaning assets that cannot be touched) are divided into
“trade intangibles” and “marketing intangibles” – trade intangibles such as know‐how
relate to the production of goods and the provision of services and are typically
developed through research and development. Marketing intangibles refer to
intangibles such as trade names, trademarks and client lists that aid in the commercial
exploitation of a product or service.
1.6.6 The arm’s length principle often becomes difficult to apply to intangibles due to
a lack of suitable comparables; for example intellectual property tends to relate to the
uniqueness of a product rather than its similarity to other products. This difficulty in
finding comparable is accentuated by the fact that dealings with intangible property

8
can also occur in many (often subtly different) ways such as by: license agreements
involving payment of royalties, outright sale of the intangibles, compensation
included in the price of goods (i.e., selling unfinishedproducts including the
know‐how for further processing) or “package deals” consisting of some combination
of the above.
1.6.7 In cases where both parties own valuable intangibles, typically the profit‐split
method is used. In cases involving sub‐licensing of intangibles by associated
enterprises to third parties, Cost plus Method can be used. In case of a sale of an
intangible, CUP may be used if there exists an internal comparable.
(iii) Intra‐group services
1.6.8 An intra‐group service, as the name suggests, is a service provided by one
enterprise to another in the same MNE group. For a service to be considered an
intra‐group service it must be similar to a service which an independent enterprise in
comparable circumstances would be willing to pay for in‐house or else perform by
itself. If not, the activity should not be considered as an intra‐group service under the
arm’s length principle. The rationale is that if specific group members do not need the
activity and would not be willing to pay for it if they were independent, the activity
cannot justify a payment. Furthermore, any incidental benefit solely by being the
member of an MNE group, without any specific services provided or performed,
should be ignored.
1.6.9 An arm’s length price for intra‐group services may be determined directly or
indirectly – in the case of direct charge, the CUP method could be used if comparable
services are provided in the open market. In the absence of CUP, the cost‐plus method
could be appropriate to apply in such cases.
1.6.10 If a direct charge method is difficult to apply, the MNE may apply the charge
indirectly via cost sharing or incorporating a service charge or not charging at all.
Such methods would usually be accepted by the tax authorities only if the charges are
supported by foreseeable benefits and if the methods are based on sound accounting

9
and commercial principles and are capable of producing charges or allocations that
are commensurate with the reasonably expected benefits to the recipient.
(iv) Cost‐Contribution Agreements
1.6.11 Cost‐contribution agreements (CCAs) may be formulated among group
companies to jointly develop, produce or obtain rights, assets or services. Each
participant bears a share of the costs and in return is expected to receive pro rata
benefits from the developed property without further payment. Such arrangements
tend to involve research and development or services such as centralised management,
advertising campaigns etc.
1.6.12 In a CCA there is not always a benefit that ultimately arises; only an expected
one during the course of the CCA. The interest of each participant should be agreed
upon at the outset.
The contributions are required to be consistent with what an independent enterprise
would have contributed under comparable circumstances, given these expected
benefits. The CCA is not a transfer pricing method; it is a contract. However it may
have transfer pricing consequences and therefore needs to comply with the arm’s
length principle.
(v) Use of “secret comparables”
1.6.13 There is often concern expressed by enterprises over aspects of data collection
by tax authorities and its confidentiality. The fact is that tax authorities are privy to, as
they need to be, very sensitive and highly confidential information about taxpayers,
such as relating to margins, profitability and business contacts and contracts.
Confidence in the tax system means that this information needs to be treated very
carefully, especially as it may reveal sensitive business information about that
taxpayer’s profitability, business strategies and so forth.
1.6.14 A secret comparable generally means the use of information or data about a
taxpayer by the tax authorities to form the basis of transfer pricing scrutiny of another
taxpayer, who is often not given access to that information – it may reveal
confidential information about a competitor’s operations, for example.

10
1.6.15 Caution may be exercised in prescribing the use of secret comparables unless
the tax authorities are able to (within limits of confidentiality) disclose the data to the
taxpayer so as to defend against an adjustment. The reason for this caution is that
taxpayers may contend that use of such secret information is against the basic
principles of equity, as the taxpayer is required to benchmark his controlled
transactions with comparables not available to him, without the opportunity to
question comparability or argue that adjustments are needed.

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2.1 Founders & Promoters
Four Swedes started Bombayworks in 2007. Today there are 30 people with offices in
Stockholm, Gothenburg, Malmö and Mumbai. There work closely with our clients from
concept to finished project, in Sweden as well as in India.
Gabriel Mannheimer Jonas Rendahl Niklas Roupé
Co-founder/Project Manager Co-founder/Project Manager CEO /Project Manager
Gabriel Mannheimer has completed his education from Lund University Sweden & his
key skills are Digital Strategy, Mobile Application Development, Start-ups, Project
Management, Digital Marketing and Entrepreneurship. He had been associated with
Gunnebo India Ltd. before he founded Bombayworks AB along with Jonas Rendahl in
2007.
Jonas Rendahl has completed his education masters in Computer Science and Masters in
Business Administration (Strategy) from Lund University Sweden. His key skills are
Digital Strategy, Business Strategy, Start-ups, Project Management, Digital Marketing and
Entrepreneurship. He had been associated with Ganebo, Sydney, Australia, and Consultant
at Accenture.
At present both of the founders are associated as Partners with Bombayworks AB.
Niklas Roupé has completed his education masters of Engineering (Mechanics) and
Technology Management from School of Economics and Management, Lund University

12
Sweden. His key skills are Digital Strategy, Mobile Application, Business Strategy,
Start-ups, Web Project Management, Project Management Digital Marketing and
Entrepreneurship. He had been associated with Accenture as Business Analyst, Aallton
Stockholm as CEO.
2.2 Vision and Mission
Strategy/ Mission
We believe in being multidisciplinary. Only when one masters and combines design,
technology and business you can make strategic decisions that will create business value
for the client and meaning for the users. We involve designers and developers early in the
project to navigate the opportunities and limitations of various digital media. Thus we can
early on ensure that the project is well feasible and appropriate with respect to
functionality, technology and budget.
Support/Vision
We believe in long term cooperation. The world changes and so does your business and
your customers. Continuous development is needed for success.
We monitor your user statistics, listen to your needs and give qualified advice on
improvements. We always have 90 days warranty and support and do you need a longer
support contract, we can offer you one that suits your needs.
Quality Policy
Analysis
We believe in working closely with our clients. Teamwork and thoughtfulness are required
to create thought out solutions that are relevant and useful in the long run.
Our projects always begin with a requirements study, where we together embody the
project as well as the business objectives. The requirements study is iterated and well
documented to create clear and well thought out goals.

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Concept
We believe in being clear. By visualizing design ideas, functionality and flows we can
concretize the solution and create a basis for further dialogue and improvements.
We show ideas of design using moodboards and create wireframes, simple graphic
drawings, which focuses on illustrating complex flows and functionality.
Design
We believe in usability. In order to create a meaningful experience for the user, design and
usability must interact.
Modern design, thoughtful interaction and relevant effects characterize our solutions. The
design is always iterated with a developer to ensure that we present the best solution for the
project. We deliver design as a clickable prototype so that you may feel the solution and get
the opportunity for further reflection before the programming is started.
Development
We believe in building solutions that will last. For a solution to live long and to facilitate
further development, quality is required, even under the hood. A poor solution gives a poor
user experience and becomes tedious and expensive to maintain.
Our projects undergo four test phases, first with the developer, then the executive producer,
designer, and finally the manager. Through this process we can ensure that you get a great
product that will last for a long time to come.
2.3 Products Offered
2.3.1 Website Revamping
Every website looks different and has a different purpose all because of decisions that were
made during its inception. Here are five big ones that you may not even think about, but
can have a huge impact on how your site looks and the message it gets across:

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1. The font
There are many styles of font out there, and picking one that is easy to read while still being
stylish can be a tall order. For instance, you can take a look at the home page of this site.
Make sure to peruse other sites and see if you like the style, size, and spacing of the font.
Take notes on what you like and why and let your web designer know your preferences.
2. Adding a blog
Adding a blog to a site is a great way to help with your SEO and impart more information
to your readers. The only important decision to make here is if you’re going to put in the
time and effort to upkeep the blog. If you know yourself and you know that blog will be
updated only a few times a year, it might be best to leave it is.
3. Picking a header
This is another design decision that can really impact the feel of a site. Some headers are
huge and take up most of the above the fold action. Other headers are quite small and let the
content and graphics do the talking. Whatever header design you prefer, make sure it is
branded correctly as it’s the face of your site.
4. Including social media
This is another decision that rests on your ability to upkeep your social media platforms.
Having the links makes you look current, until visitors click on them and see they are never
updated.
5. The navigation
Deciding what tabs are most visible will help visitors understand what you offer and what
they can learn from visiting your site. Some websites choose to have only a few tabs on the
top — the most relevant and important ones — and keep less necessary tabs on the bottom,
in the footer. Others choose to have everything up top. Take a look at other websites and
see what you like the best. These are only a few of the important decisions you will need to
make when it comes to website design, but knowing what you like and what suits your
business the best will have you end up with a better site overall.

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2.3.2 Mobile App Development
The furious rate of technological change and growth in the mobile market has made it very
challenging for developers to strategically plan a bespoke project, not only from a technical
standpoint, but also because the market share for smart phones is changing rapidly between
different systems.
Until recently, the iPhone iOS dominated the mobile market, but Google Android has now
demonstrably overtaken iPhone in terms of market share, due partly to the power of the
Google brand and partly to the platform's openness1. Other mobile operating systems
include the Blackberry RIM OS and Windows 8.
As well as the wealth of mobile platforms emerging, there are now more hardware
manufacturers than ever producing mobile devices.
When considering how best to incorporate mobile technology into an existing business
model, the primary issue for both clients and developers is currently the choice between
native apps and web applications - or a combination of the two.
Other issues include:
The inherent restrictions caused by loading, caching and latency issues on mobile devices.
The unique interaction models in mobile hardware. The lack of adequate data transfer
levels within mobile networks at this time.
We also need to consider that “mobile” no longer just means phone handsets; a range of
other, new device types have grown in popularity, such as the tablet computer or other
devices positioned somewhere between a lightweight laptop and a Smartphone, and with
some of the characteristics of both.
The growth in mobile technologies has meant that businesses in certain sectors are even
receiving most of their web traffic from users browsing in mobile contexts.
2.3.3 Retainer Services
A retainer agreement is a work for hire contract. It falls between a one-time contract and

16
full-time employment. Its distinguishing feature is that the employer pays in advance for
work to be specified later.
Additional contracts regarding the performance of this work may also apply.
It is common for a person seeking the services of a lawyer (attorney) to pay a retainer
("retainer fee") to the lawyer, to see a case through to its conclusion. A retainer can be a
single advance payment or a recurring (e.g. monthly) payment.
A retainer fee can be paid on a fixed, pre-negotiated rate or on a variable hourly rate
depending on the nature of retainer and also, the practice of the lawyer/advocate being
retained. Both models exist in the industry. The purpose of a retainer fee is to ensure
payment for future services or work to be rendered. Absent an agreement to the contrary, a
retainer fee is refundable if the work is not performed.
Retainer is the basis of authority for an advocate. It limits the authority because it is not for
all general purposes for all time. It is therefore specific in nature e.g. during litigation the
advocate is authorized by the client to accept service of proceedings that do not require
personal service on behalf of client. This kind of authority can either be expressed, implied,
apparent or usual through the usual practice of the advocate while pursuing the instructions
of the client.
By signing this Agreement, Client Name (“Client”) has retained Service Provider Name
(“Service Provider”) to proceed with the requested services, and agrees to the terms and
conditions as set forth in this Agreement:
1. Services. Client has retained Service Provider to perform.
Describe Services
2. Payment. Client agrees to commit to (retainer fee in full must accompany signed
Agreement)
2.3.4 Website Development
Web development is a broad term for the work involved in developing a web site for the

17
Internet (World Wide Web) or an intranet (a private network). Web development can range
from developing the simplest static single page of plain text to the most complex
web-based internet applications, electronic businesses, and social network services. A
more comprehensive list of tasks to which web development commonly refers, may
include web design, web content development, client liaison, client-side/server-side
scripting, web server and network security configuration, and e-commerce development.
Among web professionals, "web development" usually refers to the main non-design
aspects of building web sites: writing markup and coding.
Examples of dramatic transformation in communication and commerce led by web
development include e-commerce. Online auction-sites such as eBay have changed the
way consumers find and purchase goods and services. Online retailers such as
Amazon.com and Buy.com (among many others) have transformed the shopping and
bargain-hunting experience for many consumers. Another good example of transformative
communication led by web development is the blog. Web applications such as WordPress
and Movable Type have created easily-implemented blog-environments for individual web
sites. The popularity of open-source content management systems such as Joomla!,
Drupal, XOOPS, and TYPO3 and enterprise content management systems such as
Alfresco and eXo Platform have extended web development's impact at online interaction
and communication.
Web development has also impacted personal networking and marketing. Websites are no
longer simply tools for work or for commerce, but serve more broadly for communication
and social networking. Websites such as Facebook and Twitter provide users with a
platform to communicate and organizations with a more personal and interactive way to
engage the public.
For larger organizations and businesses, web development teams can consist of hundreds
of people (web developers). Smaller organizations may only require a single permanent or
contracting webmaster, or secondary assignment to related job positions such as a graphic
designer and/or information systems technician. Web development may be a collaborative
effort between departments rather than the domain of a designated department.

18
2.4 Competitors
The information technology (IT) and information technology enabled services (ITeS)
industry has been one of the key driving forces fuelling India's economic growth.
The industry has not only transformed India's image on the global platform, but also
fuelled economic growth by energising the higher education sector (especially in
engineering and computer science). It has employed almost 10 million Indians and hence,
has contributed a lot to social transformation in the country.
Furthermore, Indian firms, across all other sectors, largely depend on the IT & ITeS service
providers to make their business processes efficient and streamlined. The Indian
manufacturing sector has the highest IT spending followed by automotive, chemicals and
consumer products industries.
Indian organisations are turning to IT to help them grow business in the current economic
environment. IT is seen as a change enabler and a source of business value for
organisations by 85 per cent of the respondents, according to a study by VMware.
The Indian IT-business process outsourcing (BPO) sector, including the domestic and
exports segments continue to grow from strength to strength, witnessing high levels of
activity both onshore as well as offshore. The companies continue to move up the
value-chain to offer higher end research and analytics services to their clients.
There are plenty of software companies in India which have been doing well. However,
some of the Top Indian software companies can be listed as:
1. Tata Consultancy Services
2. Wipro Limited
3. Infosys Limited
4. HCL Technologies Limited
5. Satyam Computers services Limited
6. Tech Mahindra Limited
7. MphasiS Limited
8. Patni Computer Systems
9. Oracle Financial Services Software Limited
10. 3i Infotech Limited

19
The information technology industry is intensely competitive, and competitive pressures
could adversely affect prices (including pricing practices or pricing models) or demand for
our products and services.
We operate in the intensely competitive information technology industry, which is
characterized by rapidly changing technology, evolving industry standards, frequent new
product introductions, and price and cost reductions. In general, as a participant in the data
warehousing market, we face:
• Changes in customer IT spending habits and other shifts in market demands, which
drive competition;
• A trend toward consolidation of companies which could adversely affect our ability
to compete, including if our key partners merge or partner with our competitors;
• Continued pressure on price/performance for data warehousing solutions due to
constant technology improvements in processor capacity and speed;
• Changes in pricing, marketing and product strategies, such as potential aggressive
price discounting and the use of different pricing models by our competitors or
other factors;
• Rapid changes in computing technology and capabilities that challenge our ability
to maintain differentiation at the lower range of data warehousing analytic
functions; and
• Changing competitive requirements and deliverables in developing and emerging
markets.

20
2.5 Financials
Table 2.1
Equity Share Capital of Bombayworks Software Solutions Private Ltd.
Equity Share Capital (Shares of
` 10 each)
No. Of Shares Value in `
Bombayworks AB (Sweden) 9998 99980
Bombayworks (India) 2 20
Total 10000 100000
Table 2.2
Income statement for 2011-12 & 2012-13
Particulars 2011-12 2012-13
Revenues ` 20766824 ` 12325749
Expenses ` 19185753 ` 10813671
Profits ` 1591071 ` 1512078

21
Table 2.3
Calculated Ratios for 2011-12 & 2012-13
Particulars 2011-12 2012-13
Net profit ` 103927 ` 741980
Gross Profit ` 1591071 ` 1512078
Dividend - -
Net Profit Ratio 0.61 % 5.32 %
Return on Capital Employed 0.63 1.07
Debt – Equity Ratio 0.52 0
Current Ratio 1.89 1.26
Liquidity Ratio 1.89 1.26
2.6 Some Projects
Touch of Taste: http://www.touchoftaste.se/
Touch of Taste website was a few years old and did not differentiate itself from similar
recipe focused sites. Our challenge was to produce a website that would feel modern and
relevant for the serious home chef. We developed a concept with inspiring recipes, a
cooking school and useful tips to make any visitor a better chef.
Tasteful pictures and movies enhance the informational content. In a short time, the
number of visitors increased by 200% and each visitor spent one minute longer on the site.
By making the website responsive and mobile adaptive, visits from mobile phones
increased by over 400%. It was developed using Curry cms.

22
Abba Sea Food: http://www.orklafoods.se/
Abba Seafood’s products are available in more than 30 countries around the world.
However, country specific web sites were missing but requested by distributors as well as
consumers. We developed a flexible solution that could easily be rolled out in all different
markets. In our solution the Orkla Foods administrator is in control of the global content
while the local administrators have limited rights.
The local administrators can only edit the local site, but is limited to choose among global
products, recipes and pictures. Combined with Curry cms - Live edit, the website is
extremely easy to administer and requires minimal support and training. The restrictions
also ensure that the brand guidelines are followed and Orkla Foods does not need to
monitor the market-specific websites.
My Dog Buddy: https://mydogbuddy.co.uk/
My Dog Buddy is a London-based company that requested a solution that would connect
dog owners and dog sitters, like an Airbnb for dogs. It’s a complex solution with high
demands for intuitive interaction and simple flows. A simple and effective search engine,
bookings and payments online are some reasons why My Dog Buddy is now the largest
provider of home dog boarding in the UK. The site has so far grown by 50% per month and
only in London are over 140 dog sitters. It was developed using Curry cms.
Attendo: http://attendo.se/
Attendo is one of Sweden's leading health care companies and has been around since 1985.
We have developed Attendo’s responsive website for the Nordic countries using Drupal.
Attendo wanted to create a personal website with a local presence.
On Attendo we work for you to receive the care you need in the way you want. We offer
assisted living and residential care in many locations across Sweden.
Attendo offers individual and family that is tailored to each individual's specific needs.
If you need support and care because of a disability, we help you live an active life on your
terms.

23
We developed a website with over 600 landing pages, one for each health care unit. Each
health care page is locally administered and with around 300 administrators we had to
really do our best to make the administration simple and intuitive.
Club Mahindra: http://www.clubmahindra.com/
Club Mahindra, with a customer base of over 160,000 members, were looking for a modern
and user-friendly design for its website. The challenge was to simplify information and to
attract new customers. The target group is primary family members with the need of
finding vacation ownership packages.
We designed and developed the new clubmahindra.com on Curry cms. It is responsive and
accessible on desktops, mobiles and tablets. The new website has seen a 30% rise of new
visitors and an increase of 40% membership requests after the launch.
Channel V (VithU App) Mobile App
VithU is an emergency App that, at the click of the power button of your Smartphone 2
times consecutively begins sending out alert messages every 2 minutes to your contacts
that you feed into the app as the designated receivers or guardians.
The message says "I am in danger. I need help. Please follow my location."
The receiver will receive a link to your location every 2 minutes giving them your updated
location. Also, you will get updates on the Crime Scene in India and a “Tips Feed” option
exclusively giving you safety tips in an emergency situation.
Tara Jewls Ltd: http://www.tarajewels.in/
Tara Jewels plays a significant role in jewellery exports from India to global markets and
caters to retailers across the USA, UK, Europe (12 countries including Austria, Germany
and Switzerland), Australia, China, South Africa, UAE and Canada. We supply to
jewellery retailers in these markets and reach our consumers through national chains,
television and Internet, departmental stores, hypermarkets and small chain jewellers.
The company is now looking at direct distribution in the growing economies i.e. India and

24
China.
2.7 SWOT Analysis
A SWOT analysis is commonly used in marketing and business in general as a method of
identifying opposition for a new venture or strategy. Short for Strengths, Weaknesses,
Opportunities and Threats, this allows professionals to identify all of the positive and
negative elements that may affect any new proposed actions.

25
Figure 2.1
SWOT Analysis of Bowmbayworks Software Solutions Pvt Ltd.
• Funding available from parent company.
• No conflicts with parent company
regarding transfer pricing due to
reserve pricing.
• Flexible working patterns in the
organization for all the employees.
STRENGTHS
• Negotiations regarding recovery of billed
money from clients
• Only Swedish projects are mainly focused
on
WEAKNESSES
• New Projects may improve flexibility
of the company to sell its
product/services
• Companies now focus on E-Business
practises as many things are
purchased and reviewed online.
• Project will boost company's public
image as it increases its reach with
the internet.
OPPORTUNITIES
• Competitors are large in numbers and
cannot be counted.
• High attrition rate in the industry
THREATS

26
2.8 Association of Bombayworks Software Solutions Pvt Ltd.
Table 2.4
Association between two companies
Sr. No. Basis Theoretical Practical
1. Share holding
pattern.
One enterprise holds, directly
or indirectly, shares carrying
not less than 26% of the voting
power in the other enterprise.
Bombayworks AB holds
99.98% shares of
Bombayworks Software
Solutions Pvt Ltd.
2. Director Any person or enterprise holds,
directly or indirectly, shares
carrying not less than 26% of
the voting power in each of
such enterprises.
The director Mr. Gabriel
Mannheimer of
Bombayworks AB holds
0.01% of shares of
Solutions Pvt Ltd.
3. Voting Rights Section 92A(2)(a) provides that
two enterprises are deemed to
be associated enterprises if one
enterprise holds shares carrying
at least 26% of the voting
power in the other enterprises.
On the other hand section 92A
(1) does not provide for any
minimum limit which is
required to constitute
participation in capital.
Here Bombayworks AB
and Bombayworks
Software Solutions Pvt Ltd
are associated as the parent
company is holding
99.98% of the voting
power in Bombayworks
Software Solutions Pvt
Ltd.

27
4. Loan
advanced
A loan advanced by one
enterprise to the other
enterprise constitutes not less
than 51% of the book value of
the total assets of the other
enterprise.
NOT APPLICABLE.
5. Surety for
debts
One enterprise guarantees not
less than 10% of the total
borrowings of the other
enterprise.
NOT APPLICABLE.
6. Director’s
role
More than half of the board of
directors or members of the
governing board, or one or
more executive directors or
executive members of the
governing board of one
enterprise, is appointed by the
other enterprise.
As Mr. Gabriel
Mannheimer is the director
of Bombayworks Software
Solutions Pvt Ltd. & he is
also CEO of
Bombayworks AB.
7. Appointment
of Director
More than half of the directors
or members of the governing
board, or one or more of the
executive directors or members
of the governing board, of each
of the two enterprises are
appointed by the same person
or persons.
Mr. Niklas Roupé CEO of
Bombayworks AB has
appointed Mr. Gabriel
Mannheimer as the
director in both the
associated companies.

28
8. Technical
Know How
The manufacture or processing
of goods or articles or business
carried out by one enterprise is
wholly dependent on the use of
know-how, patents, copyrights,
trade-marks, licenses,
franchises or any other business
or commercial rights of similar
nature, or any data,
documentation, drawing or
specification relating to any
patent, invention, model,
design, secret formula or
process, of which the other
enterprise is the owner or in
respect of which the other
enterprise has exclusive rights.
Both the companies deal
into same line of business
and Bombayworks AB
take support of
Solutions Pvt Ltd. to
complete their projects.
Basically the parent
company outsources their
business in India.
9. Materials for
rendering
services.
90% or more of the raw
materials and consumables
required for the manufacture or
processing of goods or articles
carried out by one enterprise,
are supplied by the other
enterprise, or by persons
specified by the other
enterprise, and the prices and
other conditions relating to the
supply are influenced by such
other enterprise.
NOT APPLICABLE

29
10. Selling of final
product.
The goods or articles
manufactured or processed by
one enterprise, are sold to the
other enterprise or to persons
specified by the other
enterprise, and the prices and
other conditions relating thereto
are influenced by such other
enterprise.
The parent company
outsources their business
in India; hence Swedish
Team is in constant
contact regarding delivery
schedule and other
specification of a project.
11. Constitution
for Sole
Proprietorshi
p.
Where one enterprise is
controlled by an individual, the
other enterprise is also
controlled by such individual or
his relative or jointly by such
individual and relative of such
individual.
NOT APPLICABLE
12. Constitution
of Hindu
Undivided
Family
Business.
Where one enterprise is
controlled by a Hindu
undivided family, the other
enterprise is controlled by a
member of such Hindu
undivided family, or by a
relative of a member of such
Hindu undivided family, or
jointly by such member and his
relative.
NOT APPLICABLE

30
13. Constitution
of other
enterprise.
Where one enterprise is a firm,
association of persons or body
of individuals, the other
enterprise holds not less than
ten per cent. interest in such
firm, association of persons or
body of individuals
NOT APPLICABLE
14. Mutual
interest.
There exists between the two
enterprises, any relationship of
mutual interest, as may be
prescribed.
Bombayworks AB is the
holding company and if
Solutions Pvt Ltd does
grow in their industry,
there is overall
improvement for the
parent company.

Chapter III
STATEMENT OF PROBLEM

31
Statement of Problem
Bombayworks Software Solutions Pvt Ltd. provides their services mainly to the parent
company by designing the Websites, Software and Mobile App Development and is not
involved much into selling of their services directly in the market. The clients which they
serve are handled by the Parent Co. and direct selling of their services is only catered to
the Indian Clients and the number is very less hence the concept of Transfer Pricing comes
in to the picture.
The different methods are to be distinguished and the most suitable method is to be studied
so as to understand how Transfer Pricing comes into practise with Bombayworks Software
Solutions Pvt Ltd.

Chapter IV
RESEARCH
METHODOLOGY

32
4.1 Objectives of Study
1. To understand the concept and different methods of Transfer Pricing.
2. To study how Transfer pricing is applicable in Bombayworks Software Solutions
Pvt Ltd.
3. To analyse which is the most appropriate and suitable method of transfer pricing
for Bombayworks Software Solutions Pvt Ltd.
4.2 Significance of the Study
India is being looked upon internationally as an outsourcing center for fulfilling the IT
and IT-related needs of multinationals operating on a global basis. The ability of India to
leverage its huge human resource pool, especially its IT and English language skills, is
enormous
India has experienced the setting up by various multinationals of dedicated Back Office
Centre and should witness further growth in the future. As a result outsourcing of various
website revamping, software development & mobile application developments services
are been done by the companies outside India. The Transfer Pricing Regulations and
Rules states that all international transactions between associated enterprises, ie related
parties, must be documented and benchmarked, to show that the international transactions
have taken place at arm's length.
Thus, to keep this industry alive and create certainty in the environment, the Indian
revenue authorities should consider issuing specific guidelines for specialized services
regarding the methodology to be applied for arriving at an arm's-length price, etc. This
would avoid litigation, remove uncertainty and encourage foreign direct investment in
this large growth sector of the economy.
4.3 Scope of the Study
In case of taxation there are many laws applied to all company but in case of transfer
pricing it is applied to only to some Specific Company. So the awareness of the source is
very less. Therefore it is necessary to create awareness of this understanding.

33
Segments:
A) Website Revamping
B) Mobile Application Development
A two year study has been done of the various projects undertaken by Bombayworks i.e.
2011-12 & 2012-13.
For quick reading and typing Bombayworks is used as BW.
4.4 Data Collection
The data has been collected from secondary sources which are:
1. Websites
2. Study Material
3. Financials of Company.
4. Manuals.
4.5 Tools of Analysis
Case Study method has been used to analyze the concept of Transfer Pricing.
4.6 Limitations of the Study
1. All methods are not suitable in this condition.
2. Only certain scenario is considered for the company.
3. Applicability is checked only to the company.
4. Tax point of view is not considered.

Chapter V
DATA ANALYSIS &
INTERPRETATION

34
Bombayworks Software Solutions Pvt Ltd India and Sweden are two associated
companies that deal in software and mobile application development services. These
companies trade between themselves to serve the main clients and hence there are some
important foreign transactions which they carry out throughout the year.
In the first section of the project the suitability of different methods of Transfer Pricing
have been studied.
In the second section the calculation of Transfer Pricing is shown.
As these transactions are across the border the internal transfer of services has to be
priced according to arm’s length principle.
The data analysis has been done in 4 sections:
5.1 Transfer pricing methods
5.2 Statement Analysis and Interpretations
5.3 Difference in Pricing
5.4 Summary of Interpretations

35
5.1 Transfer pricing methods
All these transfer pricing methods rely directly or indirectly on the comparable profit,
price or margin information of similar transactions. This information may be an “internal
(comparable)” based on similar uncontrolled transactions between the entity and a third
party or an “external (comparable)” involving independent enterprises in the same market
or industry.
BW is in the service industry and hence there is no actual quantification of things used to
prepare and complete a project. So it uses the technique of counting the number of hours
used for completion of one project. The total cost involved to prepare the project is
brought down to cost per hour and the cost of each project is determined. A certain
margin is fixed while serving the clients and billing is done.
In the case of serving the Parent Co., BW does not add up management hours for
completing any project. But when other clients or Indian clients are served the company
adds up the management hours when the final bill is given to the clients.
There are some of the main reasons why BW does not uses other Transfer pricing
methods:
5.1.1 Comparable Uncontrolled Price (CUP): This method is generally preferred to the
companies doing business in products. The controlled price charged to the third party or
in the outside market is higher as it increases various types of costs such as advertising,
packing, etc. And if the product is transferred to the sister concern or the parent company
the cost is reduced. In the case of BW product is the service to the clients and is the same
to its Parent Co. or the third party client. Hence this method is not taken into
consideration for calculating the arm’s length price between the two companies.
5.1.2 Resale Price Method: Here the Swedish Co. directs the Indian Co. to the various
types of work they want to get it done in order to serve their clients. They basically
outsource their time and efforts to India and pay them. But in Resale Price Method the
company directly buys the product/services from one company and resells it at a margin
to earn appropriate profit. In this case the Parent Co. distributes the work according to the

36
skill sets of the employees of both the country and complete the project like a team. Thus,
we can say that this method cannot be applied for Transfer Pricing techniques.
5.1.3 Cost plus (C+, CP): The two companies are in the same field of business and are
not the companies to buy the product and help the other company to sell their product.
Some companies buy the products of another to add it with their product during the sales.
The product is not complete by adding the other company’s product. Both the companies
are inter-dependent on each other so as to apply their knowledge and skills to accomplish
the given assignments by their clients. Financially they are independent to record their
cost and manage their liabilities and assets which might add some weightage to this
method but BW does not take this method as a medium to calculate arm’s length price for
their internal transfers.
5.1.4 Profit split methods (“PSM”): Both the companies’ similar types of services to
their clients but they earn profits on a different margin and incur different types of
expenses. The expenses and the incomes of these two companies cannot be compared and
added up together to derive the arm’s length price. The pattern, vision and mission of the
two companies may differ on a minimum margin and the culture varies too, hence this
method is also not adopted and suited for the Transfer Pricing decisions.
5.1.4 Negotiated Price Method: In this method, the market price of the product/service
is the base factor on which the Transfer Price is fixed. The base of the market price
cannot be fixed as each and every software/application developed is unique in nature and
customized by the clients. The base market price cannot be determined in exchanged at
each and every time. Negotiation is mainly done on the market price by the managers and
the person with the best skill set will win it for the company. But negotiation is only
possible when both market price and homogeneity of the service is there. Thus, this
method cannot be used in BW for determining arm’s length price.
5.1.5 Time and Materials Pricing Method: This method is used in the service and
construction industries to bill customers for a standard labor rate per hour used, plus the
actual cost of materials used. The standard labor rate per hour being billed does not
necessarily relate to the underlying cost of the labor; instead, it may be based on the

37
market rate for the services of someone having a certain skill set, or the cost of labor plus
a designated profit percentage.
As these are the various methods through which arm’s length could be used but only
Time and material pricing method comes near to the working culture of the associated
companies.

38
5.2 Calculation of Transfer Price
The Balance sheet of two different years is observed where the expenses shoot up and
where cost reduction can be done to increase profit margins of the company. In an area
the company spends too much because of the style of the business. Operating expenses
and Total expenses are analyzed with different types of projects completed by BW.
Table 5.1
Details of Other Expenses 2011-12
Other Expenses Amount in `
Power and fuel 198,687
Rent Office 2,054,177
Rates and Taxes NIL
Legal and Professional Fees 903,316
Auditors Remuneration 556,657
Loss on Foreign currency transaction 205,362
Travelling expenses 542,085
Communication Cost 394,370
Commission and brokerage 105,000
Preliminary Expenses written off 24,000
Repair and Maintenance NIL
Miscellaneous Expenses 278,347
TOTAL 5,262,001

39
Fig 5.1
Other Expenses 2011-12
Interpretation: The highest proportion of expense which the company pays is the Office
Rent (39%) as the company is not in the manufacturing process to produce any product
and only uses floor space for continuous development of services with the help of special
desktops. Professionals are hired for giving initial ideas for development of some
applications and software and are the main part of Legal and Professional Fees (17%).
4%
39%
0%
17%
11%
4%
10%
8%
2%
0% 0%
5%
Other Expenses 2011-12 Power and fuel
Rent Office
Rates and Taxes
Legal and Professional
Fees
Auditors Remuneration
Loss on Foreign
currency transaction
Travelling expenses
Communication Cost
Commission and
brokerage
Preliminary Expenses
written off
Repair and
Maintainence
Miscellaneous
Expenses

40
Table 5.2
Details of Total Expenses 2011-12
Total Expenses Amount in ` Percentage (%)
Employee benefit & expense 5,411,718 50.05
Depreciation & Amortization
expenses
139,952 1.29
Finance Cost NIL -
Other expenses 5,262,001 48.66
TOTAL 10,813,671 100.00
Fig 5.2
Interpretation: BW is into the service industry and it does not incur more expenses on
machinery or labor which are direct in nature, hence indirect expenses such as salaries for
Employees and other incentives and benefits are more important factors in which the
50%
1%0%
49%
Total Expenses 2011-12 Employee benefit &
expense
Depreciation &
Amortization
expenses
Finance Cost
Other expenses

41
company which were 50% of the total expenses and it had to invest so as to get a team of
motivatedemployees which would raise the performance of the company. Hence we can
say that Office Rent and Employees Salary are nearly the same and are the main areas
where the company spends to operate the business more wisely.
Table 5.3
Details of Total costs per hour for 2011-12
Particulars Cost & Hours
Total Expenses ` 10813671
Total Hours 8320
Total Cost Per Hour ` 1299.72
Interpretation: In the above given table shows how per hour cost is derived to charge
the clients for making and developing the projects. So we can say that the profit margin is
51.98% as the price at which these services are transferred is ` 2500.

42
Table 5.4
Other Expenses Amount in `
Power and fuel 251,220
Rent Office 3,162,500
Rates and Taxes 3,700
Legal and Professional Fees 518,126
Auditors Remuneration 528,643
Loss on Foreign currency transaction 721,524
Travelling expenses 857,989
Communication Cost 505,684
Commission and brokerage NIL
Preliminary Expenses written off NIL
Repair and Maintenance 54,415
Miscellaneous Expenses 244,715
TOTAL 6,848,516

43
Fig 5.3
Interpretation: In the following year the company incurred the maximum proportion of
expense towards the Office Rent (46%) and mainly the uses floor space for continuous
development of applications and software with the help of special desktops software and
mobiles too. It was the time when the value of the Indian Currency had fallen hence the
company has also incurred more losses on foreign exchanges while dealing with the
Parent Co.
4%
46%
0%
8%
8%
10%
12%
7%
0%
0%
1%
4%
Other Expenses 2012-13
Power and fuel
Rent Office
Rates and Taxes
Legal and Professional
Fees
Auditors Remuneration
Loss on Foreign currency
transaction
Travelling expenses
Communication Cost
Commission and
brokerage
Preliminary Expenses
written off
Repair and Maintainence
Miscellaneous Expenses

44
Table 5.5
Expenses Amount in ` Percentage (%)
Employee benefit &
expense
11,972,282 62.40
Depreciation &
Amortization expenses
334,389 1.74
Finance Cost 30,556 0.16
Other expenses 6,848,516 35.70
TOTAL 19,185,743 100.00
Fig 5.4
Interpretation: The Company actually grew as it had undertaken more Swedish Projects
thus served more Clients and there was a big change in the amount of turnover. So to
grow in a perfect manner the next strategic step which the company took was to invest
62%
2%
0%
36%
Total Expenses 2012-13 Employee benefit
& expense
Depreciation &
Amortization
expenses
Finance Cost

45
more towards the employees to keep them motivated for better performance as they did
not make a huge change in the number of employees. As the work load for each
developer and the whole team increased, the expenses and the benefits had to increase in
the part of their salaries. These packages plus great allowances were the main reason for a
big proportion of 62% of the total expenses of the company. There was a rise in the
Office Rent but the Employees expenses percentage went so high that it could easily take
the burden of expenses on itself.
Table 5.6
Details of Total cost per hour 2012-13
Particulars Cost & Hours
Total Expenses ` 19185743
Total Hours 14560
Total Cost Per Hour ` 1317.70
Interpretation: In the above given table shows how per hour cost is derived to charge
the clients for making and developing the projects. So we can say that the profit margin is
52.28% as the price at which these services are transferred is ` 2500.

46
Table 5.7
Various Projects in 2012-13
PROJECTS No. of Hours
Grandmother India 180
Sterlite Technologies 295.36
Grey Worldwide (India) Pvt Ltd. 924.8
Hungama Digital Media 298.144
Contract India 412.24
Adwalls 274.32
Mahindra Holidays & Resorts India Ltd 723.2
JWT 35.2
Bose Corporation India Private Limited 916.16
TOTAL 4059.424
Interpretation: Here BW had served 9 different clients and each and every project was
unique in nature. Each project was different because of the dynamics of the industry in
which the client’s industry serves in. Each project took time and efforts from the
developers and the overall team.

47
Fig 5.5
Number of Hours for different Projects
Interpretation: Here, the efforts are quantified in number of hours spent to execute and
finish the project. In the pie diagram we can observe that BW has spent 23% each of total
working hours of 2012-13 to serve Grey Worldwide (India) Pvt Ltd. & Bose Corporation
India Pvt Ltd.
4%
7%
23%
7%
10%7%
18%
1%
23%
Projects 2012-13 Grandmother India
Sterlite Technologies
Grey Worldwide
(India) Pvt. Ltd.
Hungama Digital
Media
Contract India
Adwalls
Mahindra Holidays &
Resorts India Ltd
JWT
Bose Corporation India
Private Limited

48
Table 5.8
Projects with their Billing Amounts
PROJECTS `
Grandmother India 450000
Sterlite Technologies 738400
Grey Worldwide (India) Pvt Ltd. 2312000
Hungama Digital Media 745360
Contract India 1030600
Adwalls 685800
Mahindra Holidays & Resorts India Ltd 1808000
JWT 88000
Bose Corporation India Private Limited 2290400
Total Turnover 10148560
Interpretation: Here we also can make a note of the top 2 Projects which are making
business of nearly the same amounts and equal amount of efforts were taken to develop
and complete the projects. The minimum bill of ` 88000 was generated towards JWT and
merely had a 1% share in the total contribution to the turnover chart, though it had taken
35.2 hours to develop. This project could have been done in one day but all of the
developers don’t give time to one single project and hence we observe that a project
which couldhave been done in a day with the help of 7 developers did not happen.

49
5.3 Difference in Pricing
BW charges the Parent Co. and charges the Indian Clients a different rate. The gross
profit margin set by the company differs to both the parties though the project might be
similar. These prices are fixed and if the company has to earn more amount of profits
they need to improve on other areas such as cost reduction of some operating expenses
but cannot earn more by reducing the number of hours for a project as it is a direct
multiple for calculating the cost of the project.
The 2 main prices charged are ` 2200 and ` 2500. The lower price charged is to the
Indian Clients and the higher amount is charged to the Parent Co. for transfer of services
(applications and software). The main question comes is the difference between these two
prices is due to a specific reason.
The manpower available in Sweden is cheap as compared to the India. The advancements
in all the factors serving software or application services is better and becomes costly to
develop one or many projects. So when BW transfers their services for the Sweden Co.
they charge a price where the price is the cost of developing the product.
Hence the cost of 1 project is made equal to the price at which it is transferred. So if we
look from BW’s Sweden Co. point of view they are outsourcing their work to India. If we
analyze this situation BW’s Sweden Co. we can say that it’s a “Win or Win situation” for
them as they have spread their business in India and are serving the clients at the same
cost.
The service provided by these two companies is the same but both incur different
numbers of cost as the working environment is totally different. We here by understand
the situation by considering Project X’s cost as ‘x’ for BW India and that project is
transferred to BW Sweden at ‘x+y’. The cost for developing projects in Sweden is ‘x+y’.
So BW India earns the contribution from ‘y’ and distributes the fixed expenses and earns
profit too.
If we turn the tables around, we observe that BW’s Indian Co. actually makes profit
because of the cheap manpower available in India because of the booming IT studies

50
provided by various universities. The second reason is that Swedish charge nearly the
double for their manpower and professional service to develop software or mobile
applications.
Indian and Sweden Companies both are benefited with this conduct of business as there is
good perspective for growth in a different country and also this develops job & profit
earning opportunity for the company doing business for the Parent Co. and itself.
5.4 Summary of Interpretations
 BW India & BW Sweden both are associated with each other and follow all the
rules and regulations made by OECD.
 As they are the service based companies the calculation of the arm’s length price
is a bit of different style.
 The main strategy of BW was to expand and hence it outsourced their business to
India and flourished well.
 As it’s a service based company the balance sheet and the profit and loss account
showed a dynamic change in values of various expenses and incomes if compared
to the other companies.
 Costing of the company is simple to understand as the multiple is brought down to
cost per hour.
 The transfer pricing method used by the companies is Time and Material Pricing
Method.

51
6.1 Recommendations
Negotiation with clients: The company communicates well with the client for
getting requirements of the project, method of selling the products of clients online,
style of the website be developed or revamped, customizations of templates and also
the tracking the payments of these clients. Here BW accomplishes the projects as per
the requirements of the client but somehow fail to get the payments on time. Hence,
BW should revamp the collection/credit negotiation policy to avoid this situation.
Flat Rate: BW deals in various types of projects and creating websites for companies
serving different industries. Thus, the requirements of each and every client is unique
and the end product expected by them is according to their customization. For
preparing these projects time might be just a number to distinguish them but the
efforts put in by the developers is not the same. Some projects demand more
creativity some may not. Hence, BW should not use Flat Rate pricing for the services
but they should charge them differently according to the efforts taken by them for
developing or revamping different software and mobile applications.
6.2 Conclusion
BW India and BW Sweden are companies which are across border serving similar
services to the clients. These companies are associated enterprises hence there are
transfers of cash and services. The dealings between associated companies and the
dealings between individual companies differ a lot. Transfer pricing plays a key role
in nullifying and eradicating wrong practice of internal transactions by the companies.
Hence there is a need of concept of transfer pricing,so the transactions and the
dealings are done in a lawful manner.
The suitability of different Transfer Pricing methods has been checked by comparing
CUP Method, Resale Price Method, Cost plus Method, Profit‐split methods (PSM),
Negotiation Method & Time and Material Pricing Method. After this comparison the
company chose to adopted Time and Material Pricing method for calculating the
arm’s length price for dealings across the border.

52
6.3 Learning Outcomes
BW was an altogether different experience and was my small step to the corporate
world. Professionalism is one thing which comes into my mind when you enter an
organization like BW where all the professional developers work and the finance head
is always ready to guide and assist you if you are willing to work in a positive
manner.
1. There are lot of new things to learn from the project. For example, the different
dimension in which the company works and the different parameters it uses to
increase the efficiency of the overall performance.
2. New software which is used to develop websites and mobile applications were
known to me such as Drupal, Curry cms.
3. The process followed by BW is exciting to know as whenever there is a new task
assigned to the team, they would call up a meeting and everybody would just join
as quickly as possible and behave as if they are planning a new trip together for
doing things their way and accomplishing the project. Hence, the efforts in
teamwork was a new learning for me.
4. The project helped me to know the practical applicability of different softwarelike
MS Word, MS PowerPoint and MS Excel.
5. Before the start of this project I used to assume that Company is an entity that
helps to give jobs, but later on I realized it’s more than an artificial person which
we learnt in the early stages of accounting days.
6. Achieving something needs hard work but a company cannot be successful only
because of the hard working employees.It also has to link up the strategies they
make to achieve the long term and the short term goals as mentioned in their
Vision and Mission Statement. Thus, I learnt that hard work along with strategy is
the key to success.
7. After communicating with people who are at a senior level I understand the
importance of being disciplined.
8. Observing and gaining knowledge plus information does not come on its own. My
external guide had patience and assisted me by making me a good listener as that
habit is a must if someone has to learn, earn and live big.

53
6.4 Contribution to the organisation
The company had been using Time and Material Pricing method of Transfer Pricing
and I tried to study different kinds of methods which would be more suitable for the
company. But after putting in various inputs and overlooking of different methods
that the company uses the best suitable method.
I also helped various developers to test the website and give my views and comments
on as they wanted reviews on how the client’s customers would give. Here are some
of them:
 Proper start up look of the mobile application developed.
 Finding of proper tabs on the clients websites.
 Convenience & Accessibility of the website.

54
BIBLIOGRAPHY
BOOKS
1. Cooper D. R. (2009). Business Research Methods. New Delhi, Tata McGraw Hill
Education Private Limited.
2. Kothari, C.R. (2004). Research Methodology Methods and Techniques. (2 ed.).
New Delhi, New Age International Pvt Ltd, Publishers.
3. Brem M, Tucha T. (2006) Transfer Pricing: Conceptual Thoughts on the Nature
of the Multinational Firm. Vikalpa: The Journal For Decision Makers [serial
online]. Available from: Business Source Elite, Ipswich, MA. Accessed 13th
July,
2014.
4. Kurian B. (May 9, 2006).Software companies get relief on transfer pricing
scrutiny. Economic Times, The (India) [serial online].:Available from: Newspaper
Source Plus, Ipswich, MA. Accessed 12th
July, 2014.

55
ARTICLES
1. Transfer pricing study report by Sudit. K. Parikh& Co., Charted Accountants
for Bombayworks Software Solutions Pvt. Ltd., Financial year 2012-13 on 31st
May 2014.
2. Transfer Pricing 360° Volume 1, Issue 1, April-June 2014 on 2nd
June 2014.
3. Shankaran S. A Glimmer of Hope. Business Today [serial online]. March 17,
2013;22(6):107-109. Available from: Business Source Elite, Ipswich, MA.
Accessed 12th
June 2014.
4. Martin. A. Transfer pricing under fire. Accounting Today [serial online].
November 2013;27(11):15. Available from: Business Source Elite, Ipswich,
MA. Accessed 12th
June 2014.
5. Patel V. India's transfer pricing audit lesson. International Tax Review [serial
online]. February 2007;18(2):36-39. Available from: Business Source Elite,
Ipswich, MA. Accessed 25th
June, 2014.
6. Patel V. Transfer pricing in India: why clarity is essential. International Tax
Review [serial online]. November 2001;12(10):45. Available from: Business
Source Elite, Ipswich, MA. Accessed 4th
July, 2014.

56
REFERENCES
An Introduction to Transfer Pricing by Members of the UN Tax Committee’s
Subcommittee on Practical Transfer Pricing Issues, pp 20-24.
WEBSITES
1. http://www.transferpricing-india.com/specified-domestic-transactions.html
Accessed at 11.22am 13th June 2014
2. http://www.investopedia.com/terms/t/transferprice.asp Accessed at 10.38 21st
May 2014
3. http://bombayworks.com/&http://bombayworks.se/
4. http://www.ebscohost.com Accessed at 17.28 15th June 2014
5. www.suditkparekh.com/ Accessed at 15.33 13th June 2014

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