Transfer Pricing

Overview

When two or more associated enterprises companies enter into a joint contract during an global transaction then the cost shall be calculated taking into account the arm’s length price of the particular assistance, service, or facility, as applicable. Transfer pricing accounting needs to be appropriately done and if you are facing any issues in the same, we are here to provide you with all sorts of legal advice and services for the same.

There are a number of provisions that an organization needs to comply with under Transfer Pricing Income Tax Act 1961 such as transfer pricing section 92c is regarding the computation of arm’s length price.

Transfer Price means the price charged by individual entities for goods or services supplied to one another in multi-department, multi-office, or multinational firms. & transfer pricing is setting of the price for goods and services sold between controlled/related legal entities within an enterprise. Just in case Subsidiary Company is selling goods to parent company then the cost of those goods paid by the parent to the subsidiary is the transfer price. Under International Taxation, we also provide certain other services.

Transfer pricing helps in carrying out International Transactions such as those in International Taxation. Transfer pricing can lead to more-effective foreign investment decisions, increased tax and operating benefits resulting from business restructuring.



Provisions

Provisions under Transfer Pricing Income Tax Act

There are a number of provisions that an organization needs to comply with under Transfer Pricing Income Tax Act 1961. For Example transfer pricing section 92c is regarding the computation of arm’s length price. Few of them are mentioned below:


  • Section 92 – Computation of income from international transaction having regard to arm’s length price
  • Section 92A – Meaning of associated enterprise
  • Section 92B – Meaning of international transaction
  • Section 92BA – Meaning of specified domestic transaction
  • Section 92C – Computation of arm’s length price

Importance of Transfer Pricing

  • Transfer pricing helps in carrying out International Transactions
  • Transfer pricing can lead to more-effective foreign investment decisions.
  • Increased tax and operating benefits resulting from business restructuring


Process


Procedure for Transfer Pricing India

Transfer Pricing Methods include the following:


  • Market rate transfer price: using the market price to derive the transfer price
  • Adjusted market rate transfer price: Making adjustments in the market price according to estimations of the future
  • Negotiated transfer pricing: Negotiating the price set
  • Contribution margin transfer pricing: On the basis of contribution margin, transfer price is set
  • Cost-plus transfer pricing: Transfer Price made on the basis of cost of the components
  • Cost-based transfer pricing: Transfer its products to other subsidiaries at cost


FAQs :


1. What is transfer Pricing?

Transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control.


2. What is the purpose of transfer pricing?

a. Generating separate profit for each of the divisions and enabling performance evaluation of each division separately.

b. Transfer prices affect the allocation of a company’s resources (Cost incurred by one centre will be considered as the resources utilized by them).


3. What are the benefits of Transfer Pricing?

a. Transfer pricing helps in reducing the duty costs by shipping goods into high tariff countries at minimal transfer prices so that duty base associated with these transactions are low.

b. Reducing income taxes in high tax countries by overpricing goods that are transferred to units in those countries where the tax rate is comparatively lower thereby giving them a higher profit margin.


4. What is Transfer pricing example?

If a subsidiary company sells goods to a parent company, the cost of those goods paid by the parent to the subsidiary is the transfer price.