India is among many countries which have embraced Transfer Pricing (“TP”) regulations with prescribed mandatory documentation. TP is a complex tax.With, Base Erosion and Profit Shifting (“BEPS”) TP has become a focus area.Implementation of General Anti Avoidance Regulations (GAAR) and Place of Effective Management (POEM), have made it more complicated.If the TP approach is not correct , clients may face following issues:
- Significant local tax reassessments with penalties and interest on assessed tax;
- leads to double taxation as income has already been taxed elsewhere and relief under tax treaties may not be available;
- expensive and time-consuming litigation with tax authorities.
- Benefits of Tax Holidays not available on TP additions
Our TP services Include
At PPC, we develop TP strategies and provide assistance in TP documentation and compliance requirements in a timely manner. In addition, it involves reviewing existing documentation and global documentation from an Indian TP perspective.
With updates on the latest tax legislation amendments, rulings, and enforcement efforts, we assist you in effectively and proactively framing TP strategy.
- Help clients develop and implement efficient TP policies
- Assisting clients in amending existing policies to incorporate changes and assessing the potential impact of TP policies on their overall tax position
- Help clients in testing and reporting transfer prices
Documentation and assistance in compliance
India’s TP regulations prescribe many mandatory documentation requirements. Thus, MNCs need to ensure they comply with documentation and compliance requirements and also ensure that a system is in place for future compliances. Our Services may include:
- Assisting you in the preparation of contemporaneous documentation in a timely manner as required under the Indian TP regulations
- Reviewing your existing documentation
- To confirm that your company remains compliant in the future, we can assist you in preparing guidelines and procedures for keeping your documentation up to date.
Domestic Transfer Pricing
TP has been made applicable on certain domestic transactions defined as “Specified Domestic Transactions” (“SDT”) with effect from Financial Year 2012-13. These regulations become applicable where the aggregate amount of all such domestic transactions exceeds INR 20 Crore in a financial year.
Our Services Includes
- Assist with identifying specifically related parties and SDTs between them under the purview of domestic TP provisions
- Assist in conducting a benchmarking analysis in respect of the SDTs
- Assist in preparing documentation as required under the Indian TP regulations in respect of such SDTs.
Base erosion and profit shifting (BEPS)
BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to a low tax, Conduit or no-tax countries. Under the inclusive framework, over 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS.
The Organization for Economic Co-operation and Development (“OECD”) launched an Action Plan on BEPS in July 2013. The action plan through its various reports and recommendations proposed a new set of standards to prevent BEPS and to equip countries to prevent companies from avoiding paying due taxes. India is also part of the BEPS project in alliance with the OECD and G20 member countries.
As countries have moved into the implementation stage, some questions of interpretation have arisen. In the interests of consistent implementation and certainty for both tax administrations and taxpayers, the Inclusive Framework on BEPS has issued guidance to address certain key questions.
Based on the BEPS recommendations, in-depth scrutiny by the tax authorities worldwide is likely on transactions involving intangibles. Tax authorities are likely to draw inference and support from OECD/BEPS guidelines in determining the return from intangibles. It is extremely important to analyse how various Intellectual Property Rights (IPRs), brands, etc. are positioned and whether all stakeholders are contributing towards the development, enhancement, maintenance, and the protection and exploitation of intangibles are being remunerated appropriately and also for determining :
- Location of IPRs vs place of conceptualisation and development of such IPRs
- Legal ownership vs beneficial ownership of intangibles and related payments.
One of the most significant action plans pertaining to transparency is the three-tier TP documentation structure proposed by the OECD for MNCs in OECD and G20 countries.
The three-tier documentation structure:
- Applies to all MNCs whose ultimate parent is a resident of OECD/G8/G20 countries
- Requires providing an overview of the MNC’s global value chain
- Identifies if revenues and profits generated in all jurisdictions are commensurate with substance
- Detects artificial shifting of substantial amounts of income into tax-advantageous environments by automatic exchange of information between the tax authorities
- Recognizes where groups are located in tax havens or enjoy tax incentives
- Provides transparency on the authenticity of functions, assets, and risks of MNEs’ operations.
At PPC, we assist our clients on IPR assignments, Sale, Transfer from one Jurisdiction to another within the compliance of OECD guidelines issued from time to time.