TRANSFER PRICING RULES IN INDIA
Some Problem Areas, Issues and Suggestions
R. Das,
PGPPM-2007, IIM Bangalore
Definitions and Background:
Transfer pricing was till recent years a subject of interest only for tax administrators and subject specialists. But recent economic developments in the world have ensured that a large spectrum of society ? businessmen, multinational employees, banks and so on ? have realised the importance of this subject in the era of globalisation and with it, the proliferation of multinational corporations over the globe. Today, as more than 60% of world trade takes place within multinational enterprises, the importance of transfer pricing increases with tax authorities warming up to the phenomenon and rapidly taking steps to place their national revenue interests on the table.
The term "transfer pricing" refers to the valuation of sales and other transactions, loans, investments etc which occur between different arms of the same corporation or business group. A transfer price is the price charged for intercompany transactions within the group. The concept relates not only to trade operations proper, but also to other intra-firm transactions, such as those relating to transfer of technology, dividend remittances, royalties and technical fees payments.
Transfer pricing as a concept in direct taxation did not receive much attention until the mid-1990s when following the liberalization of the Indian economy, cross-border flows of capital and investments and increasing setting up of subsidiaries of multinational companies in India made it necessary to examine the tax implications of related-party transactions. The new Indian economy has seen the purchasing power ...