WHAT IS TRANSFER PRICING ?
Transfer pricing refers to the setting, analysis, documentation, and adjustment of charges made between related parties for goods, services, or use of property (including intangible property).
WHETHER MANDATORY?
Yes, as per the Section 92 to 92F of the Income Tax Act 1961. The Finance Act, 2001 substituted Section 92 of the Income Tax Act, 1961 by new sections 92 and 92A to 92F. These new provisions require commercial outcomes arising from international transactions between associated enterprises to be consistent with the arm's length principle. The calculation of arm's length price has to be done by using the most appropriate method. Income Tax Act mandates the company that ALP is to be calculated using one of the following methods:
- Comparable Uncontrolled Price method (“CUP”)
- Resale Price Method (“RPM”)
- Cost Plus Method (“CPLM”)
- Profit Split Method (“PSM”)
- Transactional Net Margin Method (“TNMM”)
DOCUMENTATION
The Documentation is as prescribed by the Rule 10D of the Income tax Act 1961. The Document emphasizes on the Analysis of the following Aspects:
- Functional Analysis
- Asset Analysis
- Risk Analysis
CERTIFICATION
As per Income Tax Act companies who are required to file TP reports has to file FORM 3CEB to the Tax department duly certified by a Chartered Accountant before the due date of filing income tax.