{"id":4620,"date":"2022-10-07T12:47:08","date_gmt":"2022-10-07T12:47:08","guid":{"rendered":"http:\/\/localhost\/new\/uja.in-it\/?p=4620"},"modified":"2022-10-07T12:47:08","modified_gmt":"2022-10-07T12:47:08","slug":"everything-you-need-to-know-about-transfer-pricing","status":"publish","type":"post","link":"https:\/\/uja.in\/it\/features\/everything-you-need-to-know-about-transfer-pricing\/","title":{"rendered":"Everything you need to know about Transfer Pricing"},"content":{"rendered":"\t\t
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Everything you need to know about Transfer Pricing <\/span>\n\n<\/h1>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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\n\t\t\t\t\t\t\tby Protima Venugopal\t\t\t\t\t\t<\/h6>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t
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Content Creator<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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\n\t\t\t\tAn international transaction implies a transaction between two or more associated enterprises either or both of them are non residents.\t\t\t<\/p>\n\t\t\t\t\t<\/blockquote>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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In international transactions with a high scope of tax evasion, regulations such as Transfer pricing are mandatory. Transfer Pricing is the price of transactions between two companies (belonging to one group) residing in different geographies. From a tax point of view, Transfer pricing is critical as it involves complex calculations based on the type of transactions. Since transfer pricing impacts the taxation of the states directly, it is one of the most effective methods of optimizing Tax revenue in a country.\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Why is there a need for Transfer Pricing regulations?<\/h6>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Transfer Pricing regulations are mandatory because of<\/p>

  1. Cross-border transactions like Intra Group Transactions<\/li>
  2. Different tax rates in countries<\/li>
  3. The tendency of an enterprise to evade tax in a particular country and enjoy greater profits<\/li><\/ol>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    Arm's Length Price<\/h6>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    Cross-border transactions owing to currency variations become complicated from a tax perspective. To simplify such transactions arising from an International or specified domestic transaction, Transfer pricing regulations use the Arm\u2019s length
    Arms Length Price can be defined as a price that is applied in a transaction between persons other than the associated enterprises in uncontrolled transactions.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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    International Transaction Matrix<\/h6>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    The above matrix defines an International Transaction. Clearly, any transaction between two resident enterprises cannot be categorized as an International Transaction.\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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    Methods of determining the Arm\u2019s length Price<\/h6>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    Depending on the types of transactions involved, there are five listed methods of calculating the Arm\u2019s Length Price.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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    CUP: Comparable\u00a0 Uncontrolled Price Method
    RPM: Resale Price Method
    CPM: Cost Plus Method
    PSM: Profit Split Method
    TNMM: Transactional Net Margin Method<\/p>

    The above table elaborates these methods applicable to various categories of transactions<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t

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    MAM (Most Appropriate Method)<\/h6>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    One of the above methods, the Most Appropriate Method defines the Arm\u2019s length price of a transaction.<\/p>

    The selection of the MAM depends on many factors some of which are:<\/p>

    1. Nature and class of international transaction<\/li>
    2. Class of the Associated Enterprises<\/li>
    3. Degree of comparability between international transaction and uncontrolled transaction<\/li><\/ol>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      Arithmetic Mean<\/h6>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      In cases where more than one Arm\u2019s Length Price is determined using the MAM, an arithmetic mean would determine the Arm\u2019s length price as per the below table.\u00a0<\/p>

      Sl.No.\u00a0<\/b><\/p><\/td>

      Particulars<\/b><\/p><\/td>

      Amount<\/b><\/p><\/td><\/tr>

      1<\/span><\/p><\/td>

      Transaction price<\/span>

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      A<\/span><\/p><\/td><\/tr>

      2<\/span><\/p><\/td>

      Price computed with MAM<\/span><\/p><\/td>

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      3<\/span><\/p><\/td>

      CUP<\/span><\/p><\/td>

      B1<\/span><\/p><\/td><\/tr>

      4<\/span><\/p><\/td>

      RPM<\/span><\/p><\/td>

      B2<\/span><\/p><\/td><\/tr>

      5<\/span><\/p><\/td>

      TNMM<\/span><\/p><\/td>

      B3<\/span><\/p><\/td><\/tr>

      6<\/span><\/p><\/td>

      Arithmetic Mean of above 3 methods<\/span><\/p><\/td>

      C=(B1+B2+B3)\/3<\/span><\/p><\/td><\/tr>

      7<\/span><\/p><\/td>

      Difference between transaction price & Arithmetic Mean<\/span><\/p><\/td>

      D=A-C<\/span><\/p><\/td><\/tr>

      8<\/span><\/p><\/td>

      5% of Transaction price<\/span><\/p><\/td>

      E=5% of A<\/span><\/p><\/td><\/tr>

      9<\/span><\/p><\/td>

      If D>E<\/span><\/p><\/td>

      ALP(Arm\u2019s Length Price)=C<\/span><\/p><\/td><\/tr>

      10<\/span><\/p><\/td>

      If D<E<\/span><\/p><\/td>

      ALP(Arm\u2019s Length Price)=A<\/span><\/p><\/td><\/tr><\/tbody><\/table>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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      Statutory deadline for submission of transfer pricing documentation? <\/h5>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      30th November is the statutory deadline for an accountant\u2019s report in Form 3CEB along with the Income Tax Return after the end of the Financial year under consideration.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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      Penalty for not complying with the TP regulations<\/h6>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      A penalty of 2% of the value of each international\/specified domestic transaction is applicable for failing to comply with TP regulations, to maintain TP documentation or any kind of evasive act regarding the same.\u00a0<\/p>

      The OECD<\/span><\/a> contains updates and details of Transfer Pricing regulations and is a ready repository for any kind of information required.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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      Conclusion<\/h4>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      Finally, in a bid to ensure compliance with Taxes and to widen the scope of International Taxation, Transfer Pricing guidelines are imperative. Transparency in international transactions leads to responsible business ethics and contributes to the country\u2019s economy.\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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      Are you looking for an expert to guide you through Transfer Pricing related matters? Get in touch with our team to benefit from continuous assistance in your business journey.<\/span><\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      \n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      \n\t\t\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\tGet in touch<\/span>\n\t\t\t\t\t<\/span>\n\t\t\t\t\t<\/a>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

      In international transactions with a high scope of tax evasion, regulations such as Transfer pricing are mandatory. Transfer Pricing is the price of transactions between two companies (belonging to one group) residing in different geographies. From a tax point of view, Transfer pricing is critical as it involves complex calculations based on the type of transactions. <\/p>\n","protected":false},"author":1,"featured_media":4791,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"elementor_header_footer","format":"standard","meta":{"_joinchat":[],"footnotes":""},"categories":[2],"tags":[],"class_list":["post-4620","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-features"],"_links":{"self":[{"href":"https:\/\/uja.in\/it\/wp-json\/wp\/v2\/posts\/4620","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/uja.in\/it\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/uja.in\/it\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/uja.in\/it\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/uja.in\/it\/wp-json\/wp\/v2\/comments?post=4620"}],"version-history":[{"count":0,"href":"https:\/\/uja.in\/it\/wp-json\/wp\/v2\/posts\/4620\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/uja.in\/it\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/uja.in\/it\/wp-json\/wp\/v2\/media?parent=4620"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/uja.in\/it\/wp-json\/wp\/v2\/categories?post=4620"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/uja.in\/it\/wp-json\/wp\/v2\/tags?post=4620"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}