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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER AND

    ROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    INDEXINDEX

    BackgroundBackground

    Our ExpectationOur Expectation An OverviewAn Overview

    The Audited AccountsThe Audited Accounts

    The Report in Form 3CEBThe Report in Form 3CEB

    Documentation Requirements and ExpectationDocumentation Requirements and Expectation Bridging the Expectations GapBridging the Expectations Gap

    Alternate Dispute Resolution MechanismAlternate Dispute Resolution Mechanism

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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER AND

    ROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    BACKGROUNDBACKGROUND

    Transfer pricing (TP) is a subject of relativelyTransfer pricing (TP) is a subject of relatively

    , ., .

    The TP law is evolving.The TP law is evolving.

    contd...contd...

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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER AND

    ROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    BACKGROUNDBACKGROUND

    Increasing globalization, dismantling of trade barriersIncreasing globalization, dismantling of trade barriersand the free movement of capital are the changeand the free movement of capital are the changeinducing factorsinducing factors

    Though TP is a limited subject in the tax code, itsThough TP is a limited subject in the tax code, itshorizons being global, are much bigger.horizons being global, are much bigger.

    Conventionally, TP largely impacted foreign grownConventionally, TP largely impacted foreign grownMNCs, but now, more and more home grown MNCs, asMNCs, but now, more and more home grown MNCs, aswell as close knit/family run businesses like diamond andwell as close knit/family run businesses like diamond andjewellery are in the TP net.jewellery are in the TP net.

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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER AND

    ROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    The recent flurry of ITAT TP judgments, indicates theThe recent flurry of ITAT TP judgments, indicates the

    appellate churning out of the law. Its principles willappellate churning out of the law. Its principles willcrystallize on an all India basis, in due course of time.crystallize on an all India basis, in due course of time.

    The government is sensitive to the dynamic nature of theThe government is sensitive to the dynamic nature of the..

    TP compliance costs are comparatively high.TP compliance costs are comparatively high.

    The government is also sensitive to the TP complianceThe government is also sensitive to the TP compliancecost and the fact that even SMEs would tend to be in thecost and the fact that even SMEs would tend to be in theTP net, if the threshold bar is not high enough.TP net, if the threshold bar is not high enough.

    contdcontd

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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER AND

    ROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    The limited availability of information in public domainThe limited availability of information in public domainhas been a hindrance in TP audits.has been a hindrance in TP audits.

    The volume of TP audits is increasing each year.The volume of TP audits is increasing each year.

    e ncome ax epar men s cons an y rev ew ng ee ncome ax epar men s cons an y rev ew ng eTP law and practices, training its staff and learning itsTP law and practices, training its staff and learning itslessons, both in India and abroad.lessons, both in India and abroad.

    There is a lingering gap, between the expectations of theThere is a lingering gap, between the expectations of theITD and the tax payers compliance. The expectationITD and the tax payers compliance. The expectationgap needs to be bridged to the satisfaction of bothgap needs to be bridged to the satisfaction of bothparties.parties.

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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER AND

    ROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    THE EXPECTATION GAPTHE EXPECTATION GAP

    Assesses need to pay more attention to TPAssesses need to pay more attention to TP

    compliances and maintenance of data/records.compliances and maintenance of data/records.

    The flow of even mandatory information andThe flow of even mandatory information and

    disclosures, from the assesses, have not been free anddisclosures, from the assesses, have not been free and

    forthright, at all times.forthright, at all times.

    TP conduct has not been satisfactory and informationTP conduct has not been satisfactory and information

    tends to be shared, when snared.tends to be shared, when snared.

    contdcontd

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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER AND

    ROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    There is a general unwillingness to give even routineThere is a general unwillingness to give even routinedata, on grounds of confidentiality and secrecy.data, on grounds of confidentiality and secrecy.

    mes a a o even a w o y owne s nomes a a o even a w o y owne s nofurnished, citing lack of control over the AE.furnished, citing lack of control over the AE.

    Even though information is available, direct methods likeEven though information is available, direct methods likeCUP are avoided and TNMM is preferred.CUP are avoided and TNMM is preferred.

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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER AND

    ROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    THE EXPECTATION GAPTHE EXPECTATION GAP

    A detailed and focused effort is needed to explain theA detailed and focused effort is needed to explain theassessees business and transactions with AEs,assessees business and transactions with AEs,particularly for new age/technology businesses.particularly for new age/technology businesses.

    FAR analysis is often deficient and vague.FAR analysis is often deficient and vague.

    The list of comparables with the tested party, are cherryThe list of comparables with the tested party, are cherry

    picked, and result in a biased statistical jugglery.picked, and result in a biased statistical jugglery.

    ARs at times do not take the pains to effectively putARs at times do not take the pains to effectively putforward their cases..forward their cases..BUTBUT

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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER ANDROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    THE EXPECTATION GAPTHE EXPECTATION GAP

    We find that based on experience, theWe find that based on experience, the

    assessees, and their ARs, are willing to accept,assessees, and their ARs, are willing to accept,

    amend and adapt.amend and adapt.

    There has been a willingness to accept ourThere has been a willingness to accept our

    findings, on the part of the assessees and tofindings, on the part of the assessees and torearrange their international transactions.rearrange their international transactions.

    contdcontd

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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER ANDROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    Assessees have modified their TP practices, on theAssessees have modified their TP practices, on the

    basis of past TP audits.basis of past TP audits.

    ARs have been willing to put in the efforts, to match ourARs have been willing to put in the efforts, to match ourexpectations.expectations.

    ARs have kept pace with changes in the law, which isARs have kept pace with changes in the law, which iswhy I have been invited herewhy I have been invited here..

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    TRANSFER PRICINGTRANSFER PRICING

    EXPECTATIONS FROM TAX PAYER ANDEXPECTATIONS FROM TAX PAYER AND

    ROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISMROLE OF DEPARTMENT IN ALTERNATIVE DISPUTE RESOLUTION MECHANISM

    OUR EXPECTATIONSOUR EXPECTATIONS AN OVERVIEWAN OVERVIEW

    The primary expectation of the ITD from the taxThe primary expectation of the ITD from the taxpayer, are basic and fundamental, as in any other taxpayer, are basic and fundamental, as in any other taxadministration matter viz.administration