{"id":7020,"date":"2018-02-06T18:00:26","date_gmt":"2018-02-06T12:30:26","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=7020"},"modified":"2019-09-25T15:13:28","modified_gmt":"2019-09-25T09:43:28","slug":"what-is-transfer-pricing-in-india","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/what-is-transfer-pricing-in-india\/","title":{"rendered":"What is Transfer Pricing in India"},"content":{"rendered":"

What is transfer pricing in Indian Economy <\/strong><\/h3>\n\n\n\n

Ans. The increasing participation of multinational groups in the Indian economy has arisen various issues of a transaction entered by those groups.<\/p>\n\n\n\n

Business may be carried on between resident and a person who is non-resident or not ordinarily resident in India and owing to close connection between them, the course of business may arrange that the resident may make either no profit or less than the ordinary profit in that business, such an arrangement would deprive that Indian revenue of the tax which would otherwise be payable by the resident.<\/p>\n\n\n\n

Transfer pricing means the value of Goods or Services Tax<\/strong><\/a> which is transferred between two or more related parties.<\/p>\n\n\n\n

Hence the Transfer Pricing<\/strong><\/a> can be defined as the price payable on goods or services transfer between one economy unit to another economy unit (assuming both units are in different countries but belongs to same multinational company & firm).<\/p>\n\n\n\n

Rule of Arm’s Length Price.
<\/strong><\/h2>\n\n\n\n

Ans.<\/strong> The Arm’s Length rule is applied in both case either it is transfer pricing or distribution of profit. The arm length price can be defined as a price which is payable on GST Eligibility<\/a> which has been transferred from one entity to another entity within a group and having a place of business in two different economies if these entities were not related.<\/p>\n\n\n\n

Method of Arms Length Price?
<\/strong><\/h3>\n\n\n\n

Ans. There are 6 Method of calculation of Arm’s Length Price in relation to an international transaction:-<\/p>\n\n\n\n

  1. Comparable uncontrolled price method (CUP Method).<\/strong><\/li>
  2. Resale Price Method (RPM).<\/strong><\/li>
  3. Cost Plus Method (CPM)<\/strong>.<\/li>
  4. Profit Split Method (PSM)<\/strong>.<\/li>
  5. Transactional net margin method (TNMM).<\/strong><\/li>
  6. Such Method as prescribed by the Board (N\/N 18\/2012,dated23-05-2012)<\/strong><\/li>
  7. Any other method prescribed under rule 10AB<\/strong>.<\/li><\/ol>\n\n\n\n

    Before choosing any method the following procedure must be followed:-<\/p>\n\n\n\n

    1. Identify international transaction.<\/li>
    2. Identify the uncontrolled transaction. Rule 10A (a) define the uncontrolled transaction means the transaction between the two enterprises which is directly or indirectly unassociated with each other.<\/li>
    3. Compare the international transaction with the uncontrolled<\/li>
    4. Ascertain the most appropriate method. The most appropriate method means the method which is suited to the facts & circumstance and provides the most reliable measure of the arm’s length price.<\/li>
    5. Determine the ALP by applying the most appropriate method.<\/li><\/ol>\n\n\n\n

      The central Govt. has notified that the variation between the ALP determined & price at which international transaction or specified domestic transaction has actually been undertaken does not exceed 1% of the latter in respect of wholesale trading and 3% later in other cases<\/p>\n\n\n\n

      What is Comparable uncontrolled price method (CUP Method)?
      <\/strong><\/h2>\n\n\n\n

      Ans. As per the Guidance Note issued by the ICAI the comparable uncontrolled price (CUP)<\/strong> may be determined with the following steps.<\/p>\n\n\n\n