Transfer Pricing in India
Transfer Pricing In India
1 Transfer Pricing 2 a) What is transfer pricing? 2 2 Transfer Pricing in India 3 a) Definition 3 b) Associated enterprises 4 c) International transactions 4 d) Arm’s length transaction 4 1. Comparable uncontrolled price method 4 2. Resale price method 5 3. Cost plus method 5 4. Profit split method 6 5. Transactional net margin method (TNMM) 6 6. Any other method prescribed by the board 6 e) Maintaining Documentation 6 f) Tax authorities, audit and penalties 7 3 Transfer Pricing Cases 7 a) Sony India (P) Ltd. vs. Central Board Of Direct Taxes 7 b) DIT (International Tax) vs. M/S Morgan Stanley & Co Inc (MSCo) 8 c) Commissioner of Income Tax vs. M/S Samsung India Electronics Ltd.(SIEL) 10 4 Conclusion 10 5 References 11
1 Transfer Pricing
What is transfer pricing?
In today’s world, firms have the capability to place its activities at different places/ locations. Increasingly goods and services are traded within the entity from different geographical locations and transfer pricing is used to monitor and account for such intra firm activities.
Transfer price of 120.
Generally Transfer Pricing is used when there are global locations of a same firm trade with each other. To better understand this let’s look at the example below diagram:
Now, the company as a whole is making profits at two levels: 1. In US, where it is selling to its sister company at a profit of “Rs.20”. This is normally done to maintain internal and unit profitability. 2. In India, where the company is also making a profit of “Rs.20” by selling the good to the customer.
This company goes on to pay income taxes at the end of the year on the “Rs.20 – costs incurred in India, let’s say Rs.10” (so the company goes on to pay income taxes on Rs.10). This is how transfer pricing affects every country. Out of a transaction where the origin of demand was India, the multinational makes
1 Transfer Pricing 2 a) What is transfer pricing? 2 2 Transfer Pricing in India 3 a) Definition 3 b) Associated enterprises 4 c) International transactions 4 d) Arm’s length transaction 4 1. Comparable uncontrolled price method 4 2. Resale price method 5 3. Cost plus method 5 4. Profit split method 6 5. Transactional net margin method (TNMM) 6 6. Any other method prescribed by the board 6 e) Maintaining Documentation 6 f) Tax authorities, audit and penalties 7 3 Transfer Pricing Cases 7 a) Sony India (P) Ltd. vs. Central Board Of Direct Taxes 7 b) DIT (International Tax) vs. M/S Morgan Stanley & Co Inc (MSCo) 8 c) Commissioner of Income Tax vs. M/S Samsung India Electronics Ltd.(SIEL) 10 4 Conclusion 10 5 References 11
1 Transfer Pricing
What is transfer pricing?
In today’s world, firms have the capability to place its activities at different places/ locations. Increasingly goods and services are traded within the entity from different geographical locations and transfer pricing is used to monitor and account for such intra firm activities.
Transfer price of 120.
Generally Transfer Pricing is used when there are global locations of a same firm trade with each other. To better understand this let’s look at the example below diagram:
Now, the company as a whole is making profits at two levels: 1. In US, where it is selling to its sister company at a profit of “Rs.20”. This is normally done to maintain internal and unit profitability. 2. In India, where the company is also making a profit of “Rs.20” by selling the good to the customer.
This company goes on to pay income taxes at the end of the year on the “Rs.20 – costs incurred in India, let’s say Rs.10” (so the company goes on to pay income taxes on Rs.10). This is how transfer pricing affects every country. Out of a transaction where the origin of demand was India, the multinational makes