Transfer Pricing Audit

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". “Transfer pricing” refers to the setting of prices at which transactions occur involving the transfer of property/goods or services between associated enterprises, forming part of an international group company.

This may be arbitrary and dictated, with no relation to cost and added value, diverge from the market forces. Transfer price is, thus, a price that represents the value of good; or services between independently operating units of an organisation.

The transactions between associated enterprises which may take place under conditions differing from those taking place between independent enterprises. It also refers to the value attached to transfers between unrelated parties which are controlled by a common entity.

Suppose a company A purchases goods for 100 rupees and sells it to its associated company B in another country for 200 rupees, who in turn sells in the open market for 400 rupees. Had A sold it directly, it would have made a profit of 300 rupees. But by routing it through B, it restricted it to 100 rupees, permitting B to appropriate the balance. The transaction between A and B is arranged and not governed by market forces. The profit of 200 rupees is, thereby, shifted to the country of B. The goods are transferred on a price (transfer price) which is arbitrary or dictated (200 hundred rupees), but not on the market price (400 rupees). Thus, the effect of transfer pricing is that the parent company or a specific subsidiary tends to produce insufficient taxable income or excessive loss on a transaction.

To protect the interest of revenue, the government of India through the Indian Income Tax Act 1961, frame transfer pricing regulations. Both International Transactions with Associated Enterprises and Specified domestic Transactions are subject to transfer pricing regulations. According to Section 92E, every person who has entered into an international transaction or specified domestic transaction during a previous year shall obtain a report (Transfer Pricing Audit Report) from Chartered Accountant in Form 3CEB and furnish such report on or before 30th November.

Our firm with Qualified Chartered Account and experienced professionals will provide Transfer Pricing Audit Services, Service of Maintenance of Transfer Pricing Documentations, along with the filing of Income Tax Returns, Form 3CEB, Form 3CEAA, Form 3CEAB, Form 3CEAC, Form 3CEAD, Form 3CEAE, etc wherever applicable, as per CBDT’s CBCR Reporting guidelines