ca hiren d. shah ahmedabad email: hirenindia@hotmail

CA HIREN D. SHAHCA HIREN D. SHAHAHMEDABAD AHMEDABAD

EMAIL: EMAIL: [email protected]@HOTMAIL.COM

Specific Specific Domestic Domestic TransactionsTransactions

Presentation

on

IntroductionIntroduction TP was earlier limited to ‘International Transactions’

The Finance Act 2012, extends the scope of TP provision to ‘Specified Domestic

Transactions’ between related parties w.e.f. 1 April 2012

The SC in the case of CIT vs Glaxo Smithkline Asia Pvt Ltd [2010-195Taxman 35

(SC)] recommended introduction of domestic TP provisions

SDT previously reported/certified but onus on revenue authorities

Obligation now on taxpayer to report/ document and substantiate the arm’s

length nature of such transactions

Shift from generic FMV concept to focused ALP concept

These new provisions would have ramifications across industries which benefit

from the said preferential tax policies such as SEZ units, infrastructure

developers or operators, telecom services, industrial park developers, power

generation or transmission etc. Apart from this, business conglomerates having

significant intra-group dealing would be largely impacted

IMPLICATION POST - BUDGET 2012 FOR SDT

IMPACT OF DOMESTIC TRANSFER PRICING

Intent of Indian TP RegulationsIntent of Indian TP Regulations(International transactions)(International transactions)

Indian Co.Indian Co.Associated Enterprise (AE Co.)

Associated Enterprise (AE Co.)

Shifting of Profits

Shifting of Losses

India Overseas

Tax @ 32.45% Tax @ lower rate approx 10%

Tax Saving for the Group – Loss to Indian revenue

Intent of Indian TP Regulations…Intent of Indian TP Regulations…(Domestic transactions)(Domestic transactions)

Indian Co.Tax Holiday undertaking

Indian Co.Tax Holiday undertaking

Related Enterprise in Domestic Tariff Area

(DTA)

Related Enterprise in Domestic Tariff Area

(DTA)

Shifting of expenses/losses

Shifting of income/profits

India

Tax Exemption

Tax Saving for the Group – Loss to Indian revenue

India

Tax @32.45%

Intent of Domestic TP–Domestic Tariff Area (DTA)

Scenario 1

Particulars

Taxed in India @

Co.A

33%

Co.B

33%

Scenario 2

Particulars

Taxed in India @

Sales to RP

Other Income

Purchases from RP

Other Expenses

Profit/Loss

Tax

Total Tax for theGroup

Co.A

33%

150

200

-

400

(50)

-

17

Co.B

33%

-

400

150

200

50

17

Sales to RP

Other Income

Purchases from RP

Other Expenses

Profit/Loss

Tax


100

200

-

400

(100)

-

33

-

400

100

200

100

33

By shifting of expenses from a loss making company to a profit making company, thegroup could reduce its tax liability by 16.

Intent of Domestic TP–DTA & Tax Holiday Unit

Scenario 1

Particulars

Taxed in India@

Sales to RP

Power

0%

150

DTA

33%

-

Scenario 2

Particulars

Taxed in India@

Sales to RP

Other Income

Purchases from RP

Other Expenses

Profit/Loss

Tax


Power

0%

225

300

-

300

225

-

25

DTA

33%

-

600

225

300

75

25

Other Income

Purchases from RP

Other Expenses

Profit/Loss

Tax


300

-

300

150

-

50

600

150

300

150

50

By shifting of expenses from a tax holiday unit(Power ) to a unit in theDomestic Tariff Area, the group could reduce its tax liability by 25.

To avoid such cases, Domestic TP was introduced.

What is Specified Domestic Transaction? Explanation

Expenditure incurred between related parties

defined u/s 40A(2)(b)

Undertaking to which profit linked deductions are provided, covering:

Inter-Unit transfer of goods and services – 80 IA (8) &

Transactions between entities having close connection and generating more than ordinary profits – 80 IA (10)

Payment made or to be made for expenditure incurred with

domestic related parties

Section 80IA(8) – Any transfer of goods/services between various undertakings or units of the assessee. Transfer at market value. Onus on tax payer.

Section 80IA(10) – More than ordinary profits derived from closely connected persons for claiming deduction to be brought down to reasonable profits. Primary onus on tax payer. Onus on tax authorities as well

Aggregate

transaction value exceed INR 50

million in a

financial year

Any Allowance for an expenditure or interest or allocation of any cost or expense or any income in relation to the specified Domestic transaction shall be computed having regard to the arm’s length price

CONCEPT OF ARM’S LENGTH PRICE (ALP)CONCEPT OF ARM’S LENGTH PRICE (ALP)

Concept of ALP applicable for determining taxable income arising from international transaction introduced in 2001, now extended to SDTs

ALP defined to mean a price which is applied or proposed to be applied in a transaction between persons other than AEs, in uncontrolled conditions

Comparability and FAR fundamental to the concept of ALP Comparison of conditions in a controlled transactions with

conditions in transactions between uncontrolled enterprises Compensation usually reflects functions performed (taking

into account assets used and risks assumed)

ALP concept usually relevant for transactions between “separate enterprises”; may need to be applied by analogy to SDT involving inter-unit transfer of goods/ services

WHAT IS ARM’S LENGTH PRICING? “Arm’s length price” means a price which is applied or proposed to be

applied in a transaction in uncontrolled conditions Arm’s Length price is determined using the Most Appropriate Method :

If more than one comparable price is obtained using above methods, then the arm’s length price would be ‘Arithmetic Mean’ of comparable prices

Deviation of plus / minus three percent is permitted from arm’s length price

Methods Comparability

Comparable Uncontrolled Price Method ‘Price’ of the transactions

Resale Price Method‘Gross margin’ of company reselling products / services to unrelated parties

Cost Plus Method‘Gross margin’ of company selling manufactured products / services to related parties

Profit Split Method‘Splits profits’ between parties to transactions based on economic parameters

Transactional Net Margin Method‘Net Profit margin’ (Operating Profit) of ‘Tested Party’

FAIR MARKET VALUE VS. ARM’S LENGTH PRICE

Domestic Transfer Pricing usher shift from generic ‘Fair Market Value’ concept to Arm’s Length Pricing

Characteristic Fair Market Value Arm’s Length Pricing

DefinitionThe price which goods or services would have fetched or cost in the open market

A price which is applied in a transaction in uncontrolled conditions

Computation Mechanism

No specific mechanism provided in law

Most appropriate method out of five prescribed methods

Transaction ValueAny market pricing point can be treated as fair market value

Arithmetic mean of comparable prices treated as arm’s length price

Sample SizeOne comparable may be sufficient to establish fair market value

Require bigger sample size for establishing arm’s length

DeviationNo deviation permitted from fair market value

Deviation of plus / minus three percent is permitted

DETERMINATION OF ARM’S LENGTH DETERMINATION OF ARM’S LENGTH PRICE-THE APPROACHPRICE-THE APPROACH

Methods for Determination of ALPMethods for Determination of ALP Price applied in a transaction between independent enterprises in uncontrolled conditions

To be determined by applying the Most Appropriate Method, being one of the following five methods

Comparable Uncontrolled Price (CUP) Method

Resale Price Method (RPM)

Cost Plus Method (CPM)

Any other method

Profit Split Method (PSM)

Transactional Net Margin Method (TNMM)

In case, more than one price is determined by MAM:

Apply Arithmetic mean

Range of + 3% of the arithmetic mean

Traditional transaction methods

Transactional profit

methods

SIX METHODS TO DETERMINE SIX METHODS TO DETERMINE THE ALP OF THE TRANSACTIONTHE ALP OF THE TRANSACTION

Comparable Uncontrolled Price Method:Comparable Uncontrolled Price Method:

Comparison of price charged to a related party with the price charged to independent third parties or price charged between two independent parties under similar circumstances.

Resale Price Method (‘RPM’):Resale Price Method (‘RPM’):

This method is generally used in the case of distributor or re-seller model with reference to gross profit earned from such transactions.

Cost Plus Method:Cost Plus Method:

CPM is used for examining transactions comprising provision of services or manufacturing activities with reference to gross profit earned from such transactions.

Profit Split Method (‘PSM’):Profit Split Method (‘PSM’):

It is used where transaction involves intangibles or transaction is complex. In the Indian context, the use of this method is very limited.

Transactional Net Margin Method (‘TNMM’):Transactional Net Margin Method (‘TNMM’):

The method examines net profit margin relative to an appropriate base that a taxpayer realises from a transaction with related party. This method is widely used and the most preferred method.

Any other Method:Any other Method:

It can be any method which can help in It can be any method which can help in determining the arm’s length price (ALP) of the determining the arm’s length price (ALP) of the transaction.transaction.

KEY PROVISIONS OF SDTKEY PROVISIONS OF SDT

S. 40A(2)

S. 80A(6)

S. 80IA(8)

S. 80IA (10)

LEGISLATURE INTENTION BEHIND INSERTION OF SECTION 40A(2)

To check evasion of tax through excessive or

unreasonable payments to relatives and associate

concerns and should not be applied in a manner which

will cause hardship in bona fide cases.

AO is expected to exercise his judgment in a reasonable

and fair manner

REASONABLENESS OF EXPENSES TO BE JUDGES HAVING REGARDS TO Fair market value of the goods, services or facilities for which

the payment is made, or

The legitimate needs of the business or Profession

The benefit derived by or accruing to the assesse from the

expenditure

The above view is expressed by Hon’ble Guj High Court in the

case of Coronation Flour Mills vs. Asst. CIT [ 2009] 314 ITR 1

TYPE OF TRANSACTIONS COVERED (ILLUSTRATIONS FOR PAYMENTS MADE BY A COMPANY) …

Case 1 - Director or any relative of the Director of the taxpayer – Section 40A(2)(b)(ii)

Mr. AMr. A Mr. CMr. C

Assessee (Taxpayer)Assessee (Taxpayer)

Mr. DMr. D

Dir

ect

or

Relative

Direc

tor

Covered transactions

Case 2 - To an individual who has substantial interest in the business or profession of the taxpayer or relative of such individual – Section 40A(2)(b)(iii)

Mr. AMr. A Mr. CMr. C


Mr. DMr. DRelative

Su

bst

anti

al in

tere

st >

20%

Relative

Holding Structure


Case 3 – To a Company having substantial interest in the business of the taxpayer or any director of such company or relative of the director – Section 40A(2)(b)(iv)

A LtdA Ltd

Mr. CMr. C


Mr. DMr. D

Rela

tive

Dir

ect

or

Case 4 – Any other company carrying on business in which the first mentioned company has substantial interest – Section 40A(2)(b)(iv)

C LtdC Ltd

B LtdB Ltd


A LtdA Ltd

Su

bst

anti

al in

tere

st >

20%

Substantial interest >20%

Substantial interest >20% Su

bst

anti

al in

tere

st >

20%


Holding Structure


Case 5 – To a Company of which a director has a substantial interest in the business of the taxpayer or any director of such company or relative of the director – Section 40A(2)(b)(v)

Mr. AMr. A

Mr. CMr. C


B LtdB Ltd

Dir

ect

or

Director Substantial interest >20%

Mr. DMr. D

Rela

tiv

e


Holding Structure

TYPE OF TRANSACTIONS COVERED (ILLUSTRATIONS FOR PAYMENTS MADE BY A COMPANY)…

Case 6 – To a Company in which the taxpayer has substantial interest in the business of the company – Section 40A(2)(b)(vi)(B)

B LtdB Ltd


Case 7 – Any director or relative of the director of taxpayer having substantial interest in that person– Section 40A(2)(b)(vi)(B)

Mr CMr C

Mr BMr B


A LtdA LtdSubstantial interest >20%

Subst

anti

al

inte

rest

>

20

%

Director

Rela

tive

D LtdD LtdSubstantial interest >20%


Holding Structure

Generally, Domestic TP covers domestic transactions. However it does not indicate that a SDT should not be a cross border transaction.

It does not also mean that both parties should necessarily be residents.

Example: Payment to a non-resident director covered u/s 40A(2)

DOMESTIC TP MAY EVEN APPLY DOMESTIC TP MAY EVEN APPLY TO CROSS BORDER TO CROSS BORDER TRANSACTIONSTRANSACTIONS

Person indirectly related circular No. 61 dated July, 6 1968

Body of Individuals

Co-operative Societies

Trust

CATEGORIES OF ASSESSEE NOT CATEGORIES OF ASSESSEE NOT COVERED U/S 40A(2)COVERED U/S 40A(2)

Scope of section is restricted only to disallowance of any expenditure incurred.

40A(2) cannot be applied in a case where no expenses have been claimed as a deduction by the assessee.

It does not embark upon measuring the reasonableness of income earned by the assessee for the related party transaction in the nature of income not covered.(sale at a lower price or trade discount)

EXPENDITUREEXPENDITURE

International TP gives tax authorities authority to impute notional income while it is not possible in case of domestic TP.

Domestic TP may best lead to disallowance of excessive expenditure as only expenditure is covered by section 40A(2) of the Act.

Only certain capital expenditure covered (fully claimed as deduction)

NOTIONAL INCOMENOTIONAL INCOME

TAX BURDEN, IF TRANSACTION NOT AT ALP

X Ltd.(non-tax holiday)

Disallowance of ` 20 to Y Ltd[40A(2)(b)]

Y Ltd.(non-tax holiday)

Sale at ` 120 v/s ALP i.e. `

100

X Ltd.(tax holiday)



100

Double AdjustmentTax holiday on ` 20 not allowed to X Ltd – [80IA(10)] (more than ordinary profits)

Disallowance of ` 20 to Y Ltd -[40A(2)(b)]

X Ltd.(tax holiday)



100 Inefficient pricing structure – reduced tax holiday benefit since sale price is

lower than ALP

S.80A(6) & S.80 IA(8)S.80A(6) & S.80 IA(8)

SDT provisions apply to business transactions/ transfers referred to in section 80A, 80IA(8), 80IA(10), 10AA, Chapter VI-A provisions Section 80A(6) and Section 80IA(8) require adjustment to tax holiday profits where

• Goods and services of eligible business are transferred to any other business carried on by the same taxpayer and vice versa

• Consideration for such transfer as recorded in the accounts of eligible business does not correspond to market value of such goods/ services

• In such cases, tax authorities/ taxpayer required to re-compute tax holiday claim by reference to ALP of such goods/ services

Overlap between 80A(6) and 80IA(8) not of Overlap between 80A(6) and 80IA(8) not of much consequencemuch consequence

•Is in the nature of notional adjustments for determining profits eligible for tax holiday

•Applies to all tax holiday claims under Chapter VI-A/ Section 10AA

•Onus on tax payer to establish that goods and services transferred at market value.

Section 80 IA(8) vis-à-vis Section 80 IA(10)Section 80 IA(8) vis-à-vis Section 80 IA(10)

Difference Section 80 IA(8) Section 80 IA(10)

Deals with Internal transfer of goods and services

External transfers, i.e. transactions with other parties

Applicability Application of this section is automatic.

Application of this section requires the AO to form an opinion that the transaction has been ‘arranged’ by the assessee for showing higher profits in the eligible business

Assessing Officer’s Role

AO needs to prove only whether the recorded values of the transfers is at market value or not and accordingly, determine the eligible profits

Here, AO is required to prove both the fact that the profits shown by the eligible business is inflated as also the motive/intension of the assessee to inflate such profits.

80-IA Income from Infrastructure, Telecommunication, Industrial Park & Power sector etc.

80-IAB Income of an undertaking or enterprise engaged in development of SEZ

80-IB Income from certain Industrial undertaking and Housing Projects etc.

80-IC Income from certain Industrial undertaking set up in Sikkim, HP...etc.

80-ID Income from hotels etc in Delhi, Faridabad and other specified districts.

80-IE Income from eligible business undertaking in North Eastern States

Other Sections under Chapter VI-A......to which Other Sections under Chapter VI-A......to which s. 80-IA(8) or (10) are applicables. 80-IA(8) or (10) are applicable

Section 80IA (8) & 80IA (10) – Deduction in respect of profits and gains from industrial undertaking or enterprise engaged in infrastructure development, etc.

No guidance on the meaning of close connection To align ordinary profits with arm’s length price. For example:

OP/ TC of 30% considered to be at arm’s length by the TPO Under 801A(10) the AO states that the profits are more than ordinary Solution: Defend price or evaluate alternate methods (other then profit based)

Impact of non-charging of services/ costs to tax holiday undertaking

80IA (8) 80IA (10)

Inter-unit transaction of goods or services • Business transacted with any person generates more than ordinary profits

• Owing to either close connection or any other reason

Applicable where transfer is not at market value

Applicable to tax holiday units earning more than ordinary profit

Onus on tax payer • Primary onus on taxpayer• Onus on tax authorities as well

ALP of 5 comparable companies OP/TC Mark-up of the tax holiday entity OP/TC

Arithmetic mean = 15% 30%

Close connectionClose connection

• The language used in Section 80IA (10) states that “owing to the close connection ……………. the course of business is so arranged”.

• However, the ‘close connection’ used in Section 80 IA(10) has not been defined in the Act.

• Hence, for the purpose of this section, close connection is only a method of ascertaining as to whether there is any arrangement made by the assessee for inflating the eligible profits.

• But one cannot presume the existence of close connection or possibility of arrangement for earning more than ordinary profits.

• Unlike Section 40A(2)(b), 92A, even though the scope of Section 80IA (10) has been left wide and open to cover any transaction, as long as the AO cannot substantiate that the course of business has been so ‘arranged’, owing to whatever reasons, Section 80 IA (10) can not be invoked.

Close connection?

Particulars

Voting Power

Direct or indirectholding

Directors

AS-18

>50%

Both

40A(2)(b)

>=20%

Direct

92A(2)

>=26%

Both

Key ManagerialPersonnel

Directors Not covered

Key Suppliers Specifically excluded Not covered More than 90%supplies

Comparative AnalysisComparative Analysis

Section 40A(2)(b) Section 80 IA (10)

Substantial Interest is defined under the Act.

No guidance provided for closely connected persons

SDT will not be applicable on any payment made to step down subsidiaries for providing goods or services

SDT will be applicable for any transactions between company and its step down subsidiaries carrying on eligible business

MEANING OF SPECIFIED DOMESTIC TRANSACTION

MeansTransaction covered under

Section Applicability

clause (b) of sub section (2) of Section 40

Any expenditure

Sub section (6) of 80A Computing Section ( Determination of ALP)

Sub section (8) of Section 80IAProfit based deduction

Any transfer of goods or services within units – Intra Units

Sub section (10) of Section 80IAProfit based deduction

Any business transacted within closely connected entities

In any of the section Any other transactions as may be prescribed

KEY DIFFERENCES IN THE KEY DIFFERENCES IN THE PROVISIONS RELATING TO DOMESTIC PROVISIONS RELATING TO DOMESTIC TP AND INTERNATIONAL TPTP AND INTERNATIONAL TP

International TP inter alia covers both income and expenditure transactions while Domestic TP covers transactions of expenditure only ie transactions covered u/s 40A(2).

As regards other transactions falling under sections 80A(6)/ 80-IA(8)/ 80-IA(10)/ 10AA of the Act specified for Domestic TP purposes, both expense or profit from transactions are covered.

TYPES OF TRANSACTIONS TYPES OF TRANSACTIONS COVERED:COVERED:

International TP provisions prescribe a shareholding criteria of 26% for applicability of TP while under Domestic TP a beneficial owner of shares carrying not less than 20% of voting power or beneficially entitled to share not less than 20% of profits shall be treated as a person covered u/s 40A(2).

Indirect shareholding is covered under International TP while clarity is not there in this regard in case of Domestic TP.

SHAREHOLDING CRITERIA FOR SHAREHOLDING CRITERIA FOR APPLICABILITY OF TP APPLICABILITY OF TP PROVISIONSPROVISIONS

MOST LIKELY EFFECTED INDUSTRIES..

Industries operating in SEZs

Infrastructure Developers

Infrastructure Operator

Telecom Services

Industrial Park Developers

Power Generations or Transmission

MOST LIKELY TRANSACTIONS UNDER SCANNER OF SDT Interest free Loans to Group Companies Sub section 8 of

Section 80IA

Granting of Corporate Guarantees/ Performance Guarantees by Parent Company to its subsidiaries Sub section 8 of Section 80IA

Intra-group purchase/ sell/ service transactions Sub section 8 of Section 80IA

Payment made to key personnel e.g. transaction with Directors/CFO/CEO etc.. Section 40A(2)(b)

Payment made to key personnel of Group Companies. Section 40A(2)(b)

Payment made to relative of key personnel of the assessee/group companies. Section 40A(2)(b)

CRITICAL ISSUES…….. Provisions applicable only to expenditure where payment is

made or to be made

Does this include capital expenditure? – Section 40A(2)(b)

Does this include transactions without consideration? –

Section 80IA(8) & 80IA(10)

Does threshold apply to the amount recorded in the Books of

Account or Amount determine as per ALP?

Wide coverage and goes beyond the related parties covered

under AS-18

Whether Government approval u/s 295, 297 of the Companies

Act would be relevant?

CRITICAL ISSUES……..

Applicability of OECD TP guidelines

Advance Pricing Arrangement

Benefit of range

Corresponding adjustment

SHOULD CAPITAL EXPENDITURE BE CONSIDERED UNDER PROVISIONS OF SEC 92BA?

DIFFICULT TO ESTABLISH TRANSACTIONS AT ALP

Commission to relatives of the directors/ partners

Salary paid to the relatives of the directors/Partners

Remuneration to the directors

Extra Purchase Price and Interest foregone to relatives

Good sold at lower than market price if bona fide

Higher Purchase Price than rates prevailing in the market

Interest paid to sister concerns at rate higher than normal rates

Hire Charges of Machinery or Rent paid for use of Immovable property

DOMESTIC TP- KEY ISSUESDOMESTIC TP- KEY ISSUES

When an Indian company is having both international transactions as well as SDT, whether SDT are required in the following scenarios:

a) When the value of aggregate of international transactions and SDT is less than INR 5 crores.

b) When the value of aggregate of international transactions and SDT is more than INR 5 crores, but value of SDT is less than INR 5 crores.

The taxpayer would need to report only international transactions and not SDT if the aggregate value of SDT is less than INR 5 crores.

INDIAN COMPANY HAVING BOTH SDT INDIAN COMPANY HAVING BOTH SDT AS WELL AS INTERNATIONAL AS WELL AS INTERNATIONAL TRANSACTIONSTRANSACTIONS

Domestic TP provisions cover expenditure under section 40A(2) of the Act, which includes payments to ‘any’ directors.

Fees payable to a director depends on factors such as director’s roles-responsibilities, experience, size and area of operation of company etc..

Any kind of payment such as salary, sitting fees, commission, various allowances to any director be it a comprehensive package to a chairperson or sitting fees to independent director will all be covered under Domestic TP.

BENCHMARKING OF DIRECTOR’S BENCHMARKING OF DIRECTOR’S REMUNERATIONREMUNERATION

In case of international TP, there is a set of process for reference to the TPO.

However, as stated earlier in this note, there is yet no legislation in relation to Domestic TP.

REFERENCE TO TRANSFER PRICING REFERENCE TO TRANSFER PRICING OFFICER (TPO) WITH RESPECT TO OFFICER (TPO) WITH RESPECT TO TRANSACTIONS COVERED UNDER TRANSACTIONS COVERED UNDER DOMESTIC TPDOMESTIC TP

COMPLIANCE COMPLIANCE REQUIREMENTREQUIREMENTSS

What documentation would be required?

Entity Related Price Related Transaction Related

•

•

•

Profile of Industry

Profile of group

Profile of relatedparties

•

•

Transaction terms

FunctionalAnalysis(functions, assetsand risks)

EconomicAnalysis (methodselection,comparablebenchmarking)

Forecasts,budgets,estimates

• Agreements

•

•

Invoices

Pricing relatedcorrespondence(letters, e-mails,fax, etc.)•

•

Entity Related Price RelatedTransaction

Related

Maintain and keep information and documents in relation to such transactions as statutorily required.

Obtain and file an accountant’s report in respect of such transactions along with his return of income.

All existing TP compliance requirements, mandatory documentation, TP audits (assessments) and penalty provisions would be applicable, though provisions have yet not been legislated for TP audits for SDT.

TAXPAYER WOULD NEED TO TAXPAYER WOULD NEED TO COMPLY WITH THE FOLLOWING:COMPLY WITH THE FOLLOWING:

10th June 2013: CBDT, vide Notification No. 41 amended the Income Tax Rules, 1962 10A to 10E and included SDT as regards application of various methods, comparability etc.

“The Rules” now include the definitions of the terms ‘Associated Enterprise’ and ‘Enterprise’ in relation to SDT.

The new form 3CEB now includes SDT.

In case of SDT, documentation is required where aggregate value exceeds INR 5 Crores.

In case of International TP, detailed documentation is not required if aggregate value of transactions is less than INR 1 Crore.

DOCUMENTATION REQUIREMENTSDOCUMENTATION REQUIREMENTS

New Accountants Report – Form 3CEBNew Accountants Report – Form 3CEB

Issuance of Accountants Report in Form 3CEB :Timeline is before 30 November 2013

• The new Form 3CEB (‘the Form’) contains 25 clauses requiring disclosure of the details of the various international transactions and specified domestic transactions.

• The Form is broadly divided into 3 parts.‒ Part A deals with general information about the taxpayer‒ Part B is in relation to International transactions and‒ Part C deals with Specified domestic transactions

• This new Accountants Report has to be signed by a Chartered Accountant and submitted to the Tax Department before the due date of filing return of income

APA - No

• APA framework will apply only to international transactions andnot to SDT

DRP - Yes

APA SAFE HARBOUR AND DRP

• Eligible assessee as defined under Sec 144C means any person in whose case the variation of total income arises as a consequence of TPO‟s order u/s 92CA(3)

Safe HarbourSafe HarbourSafe HarbourSafe Harbour

• Safe Harbour provisions are not applicable to transactions covered under Domestic TP.

Penalty ImplicationsPenalty Implications

Impact Quantum of Penalty

Penalty

Sec 271AA

•Failure to keep and maintain Transfer Pricing documentation •Failure to report such transaction which is required to do so •Maintaining or furnishing incorrect information or documents

2% of value of each international transaction

Section 271G

•Failure to furnish / submit any information / document to the transfer pricing officer

2% of value of international transaction for each such failure

Section 271BA

•Failure to furnish accountant’s report in Form No. 3CEB

INR 100,000

Section 271(1)(c)

•Transfer pricing adjustment – Concealment of income or furnishing inaccurate particulars of income

100-300% of amount of tax sought to be evaded on concealment of particulars of income or furnishing inaccurate particulars of such income

ca hiren d. shah ahmedabad email: hirenindia@hotmail

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