ISSN: 2476-6909; Modares Mechanical Engineering. 2019;19(2 ...
Transfer Pricing - Taxmann · ITA No. 2476/Mum/2008 Bench Members: Sh. Rajendra Singh (AM) and Sh....
Transcript of Transfer Pricing - Taxmann · ITA No. 2476/Mum/2008 Bench Members: Sh. Rajendra Singh (AM) and Sh....
Statement of Credentials | 1
Transfer Pricing
Recent Trends & Key Developments
PHD Chamber
International Tax Conference
September 04, 2014
New Delhi
All
rig
hts
reserv
ed
| 2
SESSION DETAILS
Topic: Transfer Pricing – Recent Trends and Key Developments
Moderator – Mr. Mukesh Butani, Chairman, BMR Legal
Panelists
Mr. Vijay Iyer, Partner and National Leader, EY
Mr. Tarun Arora, Partner, Deloitte
Mr. Amit Agarwal, Partner, Nangia & Co.
Mr. Sanjiv Malhotra, Partner, BMR & Associates LLP
All
rig
hts
reserv
ed
| 3
CONTENTS
DISPUTES LANDSCAPE
SAFE HARBOUR
APA
RECENT AMENDMENTS – FINANCE
ACT, 2014
CBDT GUIDANCE ON R&D
All
rig
hts
reserv
ed
| 4
DISPUTES LANDSCAPE
260 490730
1,6502,320
4,940
9,470
11,6699,934
23 22
27
39
44
51 5153 53
0
2000
4000
6000
8000
10000
12000
14000
0
10
20
30
40
50
60
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Am
ou
nt o
f a
dju
stm
en
t (U
SD
Mill
ion
)
% o
f adju
stm
ent cases
Assessment Year
Adjustment Amount (USD Million) % of adjustment cases
Source: Annual Report 2013-14 of Ministry of Finance (Budget Division)
All
rig
hts
reserv
ed
| 5
SAFE HARBOUR RULES
What has been the experience so far?
Is it inconsistent with arm’s length standard?
Implicit premium over arm’s length price?
Dis-entitlement under MAP for avoidance of double taxation
Subjectivity around characterization
What about Domestic Transactions?
Should safe harbour rules be extended to transactions such as support services,
management fee transactions?
Global policies of MNEs vs safe harbour margins?
Requirement to maintain documentation
How do we see safe harbour rules evolving in India?
All
rig
hts
reserv
ed
| 6
APA REGIME – SOME THOUGHTS
What has been the experience so far
378 APA applications filed as on 31 March 2014 - enthusiastic response in second cycle
Issues covered: Marketing intangibles, management cross charges, corporate guarantee,
share issuance, IT / ITeS, royalty, contract research and development, contract
manufacturing, TNMM margins and cost allocations
5 Unilateral APAs signed on March 31, 2014
Industry - Pharmaceuticals; Telecom and Financial services
Transactions - Corporate guarantees; Non-binding investment advisory services and
Contract manufacturing
Who should opt for APA ?
Companies facing litigation on similar issues
Where new transactions are proposed to be introduced
Losses
Routine transactions or complex ones?
Roll back provisions introduced under the APA scheme (subject to inflation adjustment) -
Amendment to the APA Rules awaited
What more needs to be done?
All
rig
hts
reserv
ed
| 7
KEY AMENDMENTS: FINANCE ACT, 2014
Inter-quartile range
Positive move – Better late than never
How does it work globally?
What does the law say now?
How the adjustment would be made if the price is outside the range – where in the range the transfer price should be set?
Multiple year data
Why was the amendment required?
What has been the Courts’ view on multiple year data?
Global best practices
What is the law as of today?
Deemed transactions
Historical points / controversies
Key rulings – Kodak India, Swarnandhara IJMII Integrated Township Development Co. Pvt. Ltd.
New law as of today
Penalty – Section 271G
Need for this amendment especially when penalty provision under section 271AA (penalty on failure to maintain the mandatory transfer pricing documentation) has not been amended?
All
rig
hts
reserv
ed
| 8
CBDT GUIDANCE ON R&D SERVICES
Circular No. 2 rescinded by issuing new Circular No. 5
Circular No. 3 amended and reissued as Circular No. 6
Controversy explained
General operating models
Positive Changes by CBDT
Restoration to selection of ‘most appropriate method’ instead of profit split method
Elimination of ‘cumulatively complied with’ in respect of conditions in circular no. 3
Deletion of the requirement that R&D centre does not use economically significant assets including intangibles
Acknowledgment of existence of three categories
Grey Areas
Clarity needed with regard to categorization
Economically significant assets and Economically significant realized risks – possibility of varied interpretation
Challenges
Onus on taxpayer to correctly determine characterization and support through documentation
UN TP Manual and Discussion Draft on Intangibles
Key observations
All
rig
hts
reserv
ed
| 9
SOME HOT TOPICS
INTERPLAY BETWEEN ALP & TAX HOLIDAY PROVISIONS
A.T. Kearney India Pvt. Ltd. Vs Additional Commissioner of Income Tax, Range – 1, New Delhi
Income Tax Appellate Tribunal, Delhi Benches
ITA No. 348/Del/2013
Bench Members: Sh. R.S. Sayal (AM) and Sh. George George K. (JM)
• Claim of deduction under section 10A in respect of revenue from
‘international transactions’
Main issue
Contentions discussed
Whether section 80-IA(10) applies when the second party to the
transaction is a non-resident
It should be an arranged course of business between the related persons
to produce more than ordinary profits
Effect of insertion of proviso to sub-section (10) w.e.f. 1st April 2013
All
rig
hts
reserv
ed
| 10
SOME HOT TOPICS
INTERPLAY BETWEEN ALP & TAX HOLIDAY PROVISIONS
Expression ‘any other person’ not qualified by phrase ‘resident in India’
Related person can be resident of India or of any country
Provision is simply concerned with the increase in profits of the assessee having
eligible business
Cumulative conditions to be satisfied – ‘Close connection’ and ‘arrangement’
Utmost importance on the part of the Assessing Officer to demonstrate that the
transactions were ‘arranged’ to produce more profit - position has to be ‘necessarily
proved’
Mere higher profits of an eligible business is no criteria to invoke section 80-IA(10)
Proviso to sub-section (10) of section 80-IA applicable in case of Specified Domestic
Transactions and is effective 1st April 2013 – does not include international
transactions
Effect of proviso – in case of ‘arranged’ SDT – ‘reasonable profit’ shall be profit
determined having regard to ALP - AO still to establish that such ‘arrangement; is not
correct
All
rig
hts
reserv
ed
| 11
SOME HOT TOPICS
MOST APPROPRIATE METHOD
Mattel Toys (I) Pvt. Ltd. Vs Deputy Commissioner of Income Tax, Circle 6(3), Mumbai
Income Tax Appellate Tribunal, Mumbai Benches
ITA No. 2476/Mum/2008
Bench Members: Sh. Rajendra Singh (AM) and Sh. Amit Shukla (JM)
• Change in the ‘most appropriate method’ (‘MAM’) so as to produce better
or more appropriate ALP
Main issue
Assessment year 2002-03
Mattel Toys (I) Pvt. Ltd. (‘assessee’) Subsidiary of Mattel Inc, USA
Disputed transaction Import of finished goods for resale in India
Method selected as per TP Study Transactional Net Margin Method (‘TNMM’)
Net margin of assessee (-) 51.22 percent
Adjusted margin of comparables (-) 17.41 percent
Contention of assessee – Most Appropriate Method Resale Price Method (‘RPM’) is the MAM
Adjustment made by the TPO INR 1.32 crore
Brief Facts
All
rig
hts
reserv
ed
| 12
SOME HOT TOPICS
MOST APPROPRIATE METHOD
Assessee entitled to raise plea for change of method in assessment/ appeal
proceedings
Appellate Court must consider such plea if change in method produces better or
more appropriate ALP on facts of the case
Upholds assessee's claim for use of Resale Price Method (RPM) for benchmarking
distribution activity
Product similarity not vital aspect for RPM, but operational comparability to be seen
Reliance placed on OECD TP Guidelines & ICAI Guidelines
ITAT ruling in Textronix and L'oreal relied upon
All
rig
hts
reserv
ed
DISCLAIMER
| 13
This presentation provides general information existing as at the time
of preparation and reflects personal views of the Panel. The
presentation is only meant for the panel discussion on International
Tax Conference on Recent Trends & Key Developments organized by
PHD Chamber. No responsibility for loss arising to any person acting
or refraining from acting as a result of any material contained in this
presentation will be accepted by the Panel. It is recommended that
professional advice be taken based on the specific facts and
circumstances. This presentation does not substitute the need to refer
to the original pronouncements.
All
rig
hts
reserv
ed
GLOSSARY
| 13
APA Advance Pricing Agreements
CBDT Central Board of Direct Taxes
ICAI The Institute of Chartered Accountants of India
IT Information Technology
ITeS Information Technology Enabled Services
ITAT Income Tax Appellate Tribunal
MAP Mutual Agreement Procedure
MNE Multinational Enterprises
OECD Organisation for Economic Co-operation and Development
R&D Research & Development
RPM Resale Price Method
SDT Specified Domestic Transactions
TNMM Transactional Net Margin Method
TP Transfer Pricing