Domestic Transfer Pricing

What does Domestic Transfer pricing mean?

The rules on transfer pricing (TP) are historically limited to international transactions only. Moreover, with effect from 1 April 2013, the scope of the transfer pricing has been expanded to different domestic transactions and is therefore active from the assessment year (A.Y) 2013-14.

What does Domestic Transfer Pricing mean in legal Definition?

Section 92BA defines specified domestic transactions that are governed by the Transfer Pricing Act, which states that the domestic transactions related to are any of the following activities in the case of an assessor.

  • Some expense incurred or incurred in conjunction with a payments made or to be made to an individual referred to in point (b) of section 40A(2).
  • Transactions related to in Section 80A.
  • The movement of goods or services as provided for in Section 8 of Section 80 – IA.
  • Some transaction related to business between the assessee and another individual referred to in Section 8 of Section 80 – IA
  • Every activity referred to in section VI-A or section 10AA, or an individual to whom the requirements of subsection 8 or subsection 10 of section 80 IA relate.
  • And where the total of such payments entered into by the assessee in the intervening year reaches 20 crores.
  • Any other transactions that may be recommended

What Threshold Limit has been prescribed in the law?

The provisions referred to above shall apply only if the aggregate value of the turnover of the transactions referred to above exceeds Rs. 20 crore (e.g. 1 April 2017 i.e. A.Y.). 2017-18 onwards) i.e. If the threshold has been reached, the consumer will be expected to conform with the Transfer Pricing provisions for all purchases, despite the fact that the volume of transactions under any head may be low. There is therefore no criterion for each head of the description

What is the applicability of Domestic Transfer Pricing?

  • In order to mitigate the tax liability, tax Payers cannot apply for transfer pricing to specific domestic transactions.
  • The monetary requirement of 20 crores shall be determined on the basis of the amount of sales and receipts on which these provisions apply
  • Concept of the related party shall involve expenditure which is not allowed to cover organizations which have common beneficial ownership
  • The transfer pricing is primarily limited to international transactions and defined domestic transactions and specifically excludes the terms of the Advance Pricing Agreement.

What does Arm's Length Price (ALP) mean?

The ALP definition has also been expanded to include Specified Domestic Transactions. ALP is characterized as the price applied to the proposed transaction to be rendered to an affected and to any other unknown entity in an uncontrollable situation.

Methods of Computing Arm’s Length Price

  • Comparable uncontrolled price method
  • Resale price method
  • Cost plus method
  • Profit Split method
  • Transactional net margin method
  • Such other method as may be notified by the Board

Which documents are required for Domestic Transfer Pricing transactions?

Company Related
  1. Company’s Profile
  2. Group companies’ Profile
  3. Profile of the unit claiming tax holiday
  4. Related parties’ Profile
  1. Terms of the transaction
  2. Functional analysis specifying functions, assets and risk
  3. Economic analysis containing method, selection and comparable benchmarking
  4. Budgets and comparable
Transaction Related
  1. Agreements
  2. Invoices
  3. Pricing Related correspondence such as email, letters etc.
Other Supporting
  1. Official publication report by government, Stock Exchanges
  2. Financial Statement

What would be our approaches and support?

1. Recognizing the transactions:

We offer guidance in defining transactions that come within the framework of Special Domestic Transactions. We help to monitor transactions and record the current pricing strategy.

2. Assessment of Impact:

We conduct an analysis of the arrangements and records on the terms of which the price is charged and payable by the companies

Examining the effect on the basis of the group's current pricing policy in order to analyze and assess whether the purchases are compatible with the long-term pricing framework.

Technical evaluation of the agreement to determine whether or not the requirements of the Special Domestic Contracts Regulation are relevant and the creation of the Arm’s Length Price for the same reason

3. Understand the implication

A high-level functional study of transactions is performed for the defined Specified Domestic Transaction.

High level benchmarking review Feedback on SDT compliance / documentation where needed

Main service offered by us includes the following:

Our team of experts will help you to meet documentation and compliance requirements as follows:

  • Support to recognize unique related party transactions and identified domestic transactions that come within the limits of the Domestic Transfer Pricing purview.
  • Guidance in performing the functional and Benchmark analysis
  • Financial support in creating commercially viable and fiscally effective Transfer Pricing policies;
  • Guidance in the processing of documents on a timely basis in compliance with the Indian Transfer Pricing Law