Transfer Pricing in India

What is Form 3CEB- Accountants Certificate?

Form 3CEB

Under transfer pricing regulations, Form 3CEB should be filed by the company along with from 3CD under Section 92A to Section 92F of the Income Tax Act 1961[1]. This form should be filed mandatorily if the company engages in any international transaction with any associate enterprise. This article examines Form 3CEB in detail.

Format of Form 3CEB

Format of Form 3CEB

Preconditions of Form 3CEB in India

Form 3CEB follows two conditions as provided under transfer pricing regulations:

  • Two or more associated enterprises enter into international transaction;
  • Specified Domestic Transaction (SDT) (w.e.f. AY 2013-14).

International Transaction and Specified Domestic Transaction

International transaction refers to a transaction which is made between two or more associated enterprises where either or both of whom are non-residents in the nature of purchase, sale/lease of the tangible/intangible property or provision of services, or lending/borrowing money or any other transaction that has a bearing on profits, income, loss or assets of such enterprises and includes a mutual agreement or arrangement among two or more associated enterprises for allocating or for the apportionment of or any contribution to any cost/expense incurred or to be incurred in connection with a benefit, service, facility provided or facility to be provided to any or more of such enterprises.

On the other hand, specified domestic transaction must satisfy certain parameters under the Income Tax Act. Following are the conditions that classify transactions as specified domestic transactions:

  • The transaction must not be an international transaction;
  • The transaction must be covered under Section 92BA;
  • The aggregate of the transactions entered into by a taxpayer must be more than the threshold limit of 20 crore rupees (beginning from AY 2016-17).
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According to the provisions of the Act, if a transaction falls within the ambit of the specified domestic transaction, then the compliance requirements of transfer pricing documentation, accountants’ report etc., shall be applicable to it in the same way as it is applicable to international transactions.

Who is required to file Form 3CEB?

If a person has made an international transaction or has entered into specified domestic transaction in the previous year is required to obtain a report from the accountant, and such report should be furnished on or before the specified date in the prescribed form. It should be duly signed and verified in the prescribed manner by the accountant and set forth such particulars as prescribed.

The answer to the above question is that if a company engages in either international transactions or specified domestic transactions with an associate enterprise, then such company should file the Form 3CEB in accordance with the transfer pricing regulations in India.

Further, these provisions applies to every person, which also includes foreign entities hence these provisions shall equally apply to foreign companies having international transactions with any associate enterprise.

Reporting requirements under Form 3CEB

The following are the reporting requirements that needs to be met:

  • Firstly taxpayers should specify the personal information and also the aggregate value of the international transactions that have been entered into;
  • Taxpayers also need to provide details on the international transactions that was undertaken in the financial year beginning from April 1, 20XX to March 31, 20XX;
  • Taxpayers should also specify about the specified domestic transactions undertaken during the financial year.
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Non-compliance with the requirements under Form 3CEB

On non-compliance with the requirements, penalty can be imposed. The penalty provisions have been described below:

  • In case the report has not been furnished, then a minimum penalty of 1 lakhs rupees shall be imposed;
  • In case of failure to furnish information or documents related to international transactions or specified domestic transactions as required under Section 92D, then a penalty equivalent to 2% of the value of the transaction shall be imposed;
  • In case of failure to maintain information and documents as required or in case of reporting of inaccurate information, then a penalty equivalent to 2% of the value of the transaction shall be imposed.

Further, in case the assessing officer or the commissioner during the course of any proceedings under the Act knows that the accountant or a merchant banker or a registered valuer has provided incorrect information in any report or certificate furnished under the provisions of this Act or the rules made thereunder then the assessing officer or the commissioner shall direct the accountant or such merchant banker or registered valuer to pay a penalty of a sum of 10000 rupees for each such report or certificate as the case may be.

What are the taxpayer’s responsibilities in this regard?

A taxpayer shall fulfil the following responsibilities:

  • Identify international transactions or specified domestic transactions during the year with associated enterprises/related party;
  • Calculate the arms length price according to Section 92C;
  • Collate and keep information or documents required under Section 92D;
  • Furnish completed annexure to form 3CEB to accountant;
  • Finally, this form must be approved which has been uploaded online by the accountant.
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This form needs to be furnished under section 92E of the income tax act relating to international transaction(s) and specified domestic transaction(s).Taxpayers should ensure strict compliance with the requirements under Form 3CEB else, it may invoke penalty provisions as specified above.

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