24-06-2013, 03:55 PM
Transfer Pricing
Transfer Pricing.ppt (Size: 749 KB / Downloads: 14)
BACKGROUND
Transfer pricing (TP) is a subject of relatively recent origin, in the Indian tax regime.
The TP law is evolving. It reflects the dynamism/momentum, with which global trade is changing and emerging. The TP law in India is fast evolving and has evinced global interest.
Since TP itself needs to factor in the rapid movements in global trade, the law is bound to move in tandem.
Increasing globalization, dismantling of trade barriers and the free movement of capital are the change inducing factors
Though TP is a limited subject in the tax code, its horizons being global, are much bigger. Its role in income tax revenues is gaining importance.
Conventionally, TP largely impacted foreign grown MNCs, but now, more and more home grown MNCs, as well as close knit/family run businesses like diamond and jewellery are in the TP net.
TRANSFER PRICINGREVENUE'S PERSPECTIVE
The limited availability of information in public domain has been a hindrance in TP audits.
The volume of TP audits is increasing each year and so are the consequent adjustment to income of the assessees.
The ITD is constantly reviewing the TP law and practices, training its staff and learning its lessons, both in India and abroad. You can call our lessons as CUP (internal/domestic) and TNMM (external/foreign).
There is a lingering gap, between the expectations of the ITD and the tax payers’ compliance. The expectation gap needs to be bridged to the satisfaction of both parties.
OUR EXPECTATIONS – AN OVERVIEW
The primary expectations of the ITD from the tax payer, are basic and fundamental, as in any other tax administration matter viz.
comply with the TP law.
maintain the records as stipulated.
the data/documents furnished to the ITD must be correct, complete and forthright.
THE AUDITED ACCOUNTS
The primary evidence, as well as the source of data, and the starting point of any tax scrutiny/audit remains the good old audited accounts.
Glaring errors and mismatches have been noted between the audited accounts and TP information.
Errors of omission and commission in the accounts and mismatches between the audited accounts and the TP reports, obviously lead to suspicion and breakdown of customary trust and dependence on audited statements.
BRIDGING THE EXPECTATIONS GAP
Since tax administration and enforcement, are strictly within the domain of the prescribed law, its requirements are explicit. So is the case of our expectations in the case of TP.
The mandatory requirements of TP documentation and disclosures are clearly laid down by the law. The expectations of the ITD are thus an open secret and in public knowledge.