IndiaIndia

Legal ReferenceS 92C of Income-tax Act, 1961; For Income-tax Rules, 1962

Indian legislation does not directly refer to the “arm’s length principle”. However, Indian legislation refers to determination of “arm’s length price” which is determined on the basis of arm’s length principle.

OECD Transfer Pricing Guidelines (and the UN TP Manual) are useful references for carrying out transfer pricing studies by taxpayers and audits by Indian transfer pricing officers (TPO). Indian transfer pricing law does not explicitly recognise the direct applicability of the OECD TPG (or the UN TP Manual). However, India has framed its own rules and guidance on transfer pricing, which are broadly in line with the OECD TPG as well as the UN TP Manual.

Legal ReferenceS 92A of Income-tax Act, 1961

Indian law contains a detailed and exhaustive definition of what constitute related parties. S 92A of the Income-tax Act 1961, defines an associated enterprise, in relation to another enterprise, as an enterprise that participates directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. It also includes situations where two enterprises have common control, capital or management through another enterprise. Besides this, the definition envisages a number of other relationships which may result in making two parties related parties or “associated enterprises”.

Legal ReferenceRule 10B and 10AB of Income-tax Rules, 1962

Other Method is prescribed in rule 10AB of Income-tax Rules, 1962. The “Other Method” can be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction with or between unrelated parties under similar circumstances, considering all the relevant facts.

• CUP (provided)
• Resale Price (provided)
• Cost Plus (provided)
• TNMM (provided)
• Profit Split (provided)
• Other (provided)

Legal ReferenceRule 10C of Income-tax Rules, 1962

India does not prescribe a hierarchy of methods. The transfer pricing method to be used is the “Most Appropriate Method” which is arrived at after considering the nature and class of international transaction, the FAR of the related parties that are parties to the transaction, the availability and reliability of comparable data, the extent to which reliable and accurate adjustments can be made to account for differences between the international transaction between related parties and uncontrolled comparable transactions, and the nature, extent and reliability of assumptions required to be made in the application of a method.

• Hierarchy of methods (not selected)
• Most appropriate method (selected)
• Other (not selected)

India’s domestic legislation does not contain specific guidance on pricing of commodity transactions for transfer pricing purposes.

• For controlled transactions involving commodities, the guidance contained in paragraphs 2.18-2.22 of the TPG is followed. (not selected)
• Domestic legislation mandates the use of a specific method for controlled transactions involving commodities (not selected)
• Other (not selected)

Indian Tax administration largely follows the said guidance (and the relevant guidance under UN TP Manual) in practice.

India does not have an explicit preference for domestic comparables over foreign comparables written into the law. Depending upon the selection of the tested party, appropriate (domestic or foreign) comparables are selected.

India typically relies on publicly available data and publicly available information in arriving at comparability data. However, India allows the transfer pricing officers to seek third party information on financials from certain companies whose financials may not be publicly available for a particular year. Wherever such information is used by the Indian tax administration, the taxpayer is given an opportunity to contest the choice of such comparables on merits.

Legal ReferenceRule 10CA of Income-tax Rules, 1962

India has introduced the range concept in its transfer pricing regulations. The range concept is applicable when the following two conditions are met: A. The most appropriate method is a method other than the "profit split method" and "other method", and B. The dataset consists of six or more comparables. In cases where the range concept is applicable and the price of the controlled transaction is not within the prescribed arm’s length range (i.e., beginning from the thirty-fifth percentile of the dataset and ending in the sixty-fifth percentile of the dataset), the median of the dataset is prescribed to be used for determining the arm’s length price. Wherever the range concept is not applicable, the arithmetical mean of all the values included in the dataset is prescribed to be used for computing the arm’s length price.

Legal ReferenceRule 10B(1) (a) –(e), Rule 10B(3) Income-tax Rules, 1962

India permits comparability adjustments. They may be carried out if such adjustments can be made reliably and accurately to the financials of the comparables.

India does not have specific guidance on pricing of controlled transactions involving intangibles. Indian transfer pricing officers typically rely on generally accepted valuation methods in this regard.

Legal ReferenceHTVI Implementation Questionnaire

India does not have such rules or special measures regarding HTVI.

India does not have specific guidance in this regard and stipulates the adoption of the Most Appropriate Method considering all relevant facts and circumstances of the case. Taxpayers are expected to maintain documentation evidencing the intra-group services transaction.

Legal ReferenceRule 10 TC(x) and rule 10TD(2A)(11) Income-tax Rules, 1962

India has introduced a safe harbour rule for receipt of low-value adding intra-group service by an Indian taxpayer from its associated enterprise. The rule stipulates that payment of mark-up not exceeding 5% on the relevant cost incurred by such service provider shall be covered under the safe harbour, provided that the entire value of international transaction, including the mark-up, does not exceed a sum of INR 100 million during the given financial year. Further, the rule mandates that the method of cost pooling, the exclusion of shareholder costs and duplicate costs from the cost pool and the reasonableness of the allocation keys used for allocation of costs to the Indian taxpayer by the overseas associated enterprise shall be certified by an accountant.

India does not have any specific guidance for financial transactions, and stipulates the adoption of the Most Appropriate Method considering all relevant facts and circumstances of the case.

Legal ReferenceS 94B of Income-tax Act, 1961

In order to limit base erosion involving interest deductions, India has introduced provisions in its domestic legislation disallowing deduction of excess interest paid in respect of any debt issued by non-resident associated enterprise of the borrower in certain cases. The excess interest has been defined as, “an amount of total interest paid or payable in excess of thirty per cent of earnings before interest, taxes, depreciation and amortisation of the borrower in the previous year or interest paid or payable to associated enterprises for that previous year, whichever is less.”

Cost contribution arrangements are evaluated based on the facts and circumstances of each case. Taxpayers are expected to maintain accurate records of costs to which contribution is being made together with the justification of appropriateness of cost allocation keys.

Legal ReferenceS 92D, S 92E and S 286 of Income-tax Act, 1961; Rules 10D, 10E, 10DA and 10DB of Income-tax Rules, 1962; Form 3CEB, 3CEAA, 3CEAB, 3CEAC, 3CEAD, 3CEAE

In India, rule 10D of the Income-tax Rules, 1962 prescribes the list of documents that are to be maintained as part of the Local file. Audit report relating to international transactions and specified domestic transactions is filed in Form No. 3CEB in accordance with rule 10E of the Income-tax Rules, 1962. Rule 10DA prescribes the list of documents for the Master file (Forms 3CEAA and 3CEAB). Rule 10DB prescribes requirements for CbCR (Forms 3CEAC, 3CEAD, 3CEAE).

• Master file consistent with Annex I to Chapter V of the TPG (not selected)
• Local file consistent with Annex II to Chapter V of the TPG (not selected)
• Country-by-country report consistent with Annex III to Chapter V of the TPG (not selected)
• Specific transfer pricing returns (separate or annexed to the tax return) (not selected)
• Other (specify) (selected)

Legal ReferenceS92D, S286 Indian Income-tax Act, 1961; Rule 10D, Rule 10DA, Rule 10DB Income-tax Rules, 1962

Transfer pricing documentation, as stipulated in S 92D read with rule 10D (for local file) and rule 10DA (for master file), must be maintained by every taxpayer that has entered into an “international transaction” (as defined in S 92B) with an associated enterprise (as defined in S 92A) and meets the monetary thresholds prescribed under the respective rules. The Master File, as per rule 10DA, is required to be filed by the last date for filing the return of income, i.e., 30 November of the year following the completed financial year. S 286 read with rule 10DB provides for preparation and filing of CbC report. The CbC report is required to be filed within 12 months from the end of the reporting accounting year. For Local File, the audit report relating to international transactions and specified domestic transactions is required to be filed in Form No. 3CEB by 31 October of the year following the completed financial year. The documentation prepared in accordance with rule 10D is required to filed only if specifically requested by the tax authorities.

Legal ReferenceS 271 AA, S 271 BA, S 271 G, S 271 GB Income-tax Act, 1961

There is no specific incentive for compliance. Penalties for non-compliance exist. For non-maintenance of documents under S92D (essentially local file), a penalty equal to 2% of the value of each international transaction can be levied. For non-maintenance of master file, penalty of INR five hundred thousand is imposable. For non-furnishing of CbCR, penalty of INR five thousand per day (up to one month) and INR fifteen thousand per day beyond one month may be imposed. Further penalties apply for continued delay or inaccurate information.

Legal ReferenceRules 10D, 10DA and 10DB Income-tax Rules, 1962; S286 Income-tax Act, 1961

Rule 10D sets the threshold for maintenance of TP documentation (local file) at an aggregate value of international transactions not exceeding INR 1 crore. For Master File, rule 10DA provides a dual threshold: consolidated group revenue exceeding INR 500 crore AND aggregate value of international transactions exceeding INR 50 crore (or INR 10 crore for intangibles). For CbCR, the threshold is group revenue in excess of INR 5500 crores (increased to INR 6400 crores from 1-4-2021).

Legal ReferenceS92CC, S 92CD, S 144C of Income-tax Act, 1961 and Rules 10F to 10T of Income-tax Rules 1962; Rule 44G; S 144C; India’s MAP Profile

The Indian APA programme was started in FY 2012-13. The duration of an APA can be up to five consecutive financial years. Rollback provisions allow for up to four preceding years. For MAPs, detailed rules are in rule 44G. India also has a Dispute Resolution Panel (DRP) mechanism under S 144C.

• Rulings (not selected)
• Enhanced engagement programs (not selected)
• Advance Pricing Agreements (APA) (selected)
• Unilateral APAs (selected)
• Bilateral APAs (selected)
• Multilateral APAs (selected)
• Mutual Agreement Procedures (selected)
• Other (please specify): Dispute Resolution Panel (selected)

Legal ReferenceS92CB of Income-tax Act, 1961; Rules 10TA to 10TG Income-tax Rules 1962

Indian safe harbour rules apply for specified international transactions in relation to specified taxpayers. For each category of specified international transaction, the circumstances under which safe harbour shall apply are specified in detail in rule 10TD of Income-tax Rules 1962.

Taxpayers are free to make year-end adjustments to bring the value of international transactions in line with arm’s length results. These adjustments may be examined if the case is taken up for transfer pricing audit.

Legal ReferenceS 92CE of Income-tax Act, 1961; Rule 10CB of Income-tax Rules, 1962

India has enacted legislation for secondary adjustment and the same is applicable from FY 2016-17 onwards. The detailed provisions are specified in section 92CE of the Income-tax Act, 1961 and rule 10CB of the Income-tax Rules, 1962.

India does not follow the Authorised OECD Approaches for the attribution of profits to PEs (AOA).

India does not follow the Authorised OECD Approaches for the attribution of profits to PEs (AOA). Instead, the attribution of profits to PEs is done in accordance with rule 10 of its Income-tax Rules, 1962, read with the relevant Double Taxation Agreement.

Legal ReferenceS144C of Income-tax Act 1961

Indian legislation has the provision of a Dispute Resolution Panel (DRP). Any taxpayer that faces a transfer pricing adjustment has the option of approaching a 3 member panel of senior tax officials before the finalisation of tax demand pertaining to the transfer pricing adjustment. The decision of DRP is binding on the tax administration. However, the taxpayer has the right to appeal against the decision of the DRP.

Legal ReferenceIncome-tax Act; Income-tax Rules

All the relevant sections and rules mentioned in this profile can be accessed at the websites mentioned in the “References” column.