Multi-national enterprises (MNE) now represent a large proportion of global GDP. Also, intra-firm trade represents a growing proportion of overall trade. Globalisation has resulted in a shift from country-specific operating models to global models based on matrix management organisations and integrated supply chains that centralise several functions at a regional or global level.
Due to increasing sophistication of business models, greater significance of intangibles and IPRs, the proliferation of digital economy, the country based transfer pricing approach and tax regulations have opened up opportunities for MNEs to greatly minimise their tax burden. In 2013, to address the issue of base erosion and profit shifting (BEPS), The Organisation for Economic Co-operation and Development (OECD’s) and the Group of 20 major economies (G20) adopted a 15 Action Plans. The 15 Actions Plans are now finalised with more focus on cross-border transactions, transparency and strengthening existing international standards.
Indian Government has taken several measures to reduce the compliance and litigation burden to taxpayers. The safe harbor rules (SHR) were revised to reduce mark-up/margins for Information Technology (IT) and IT enabled Services (ITeS). The Advance Pricing Agreement (APA) provisions and has proved to be a step in the right direction, as on 31 December 2017, total 189 APA’s have already been concluded (including 16 bilateral APAs). The scope of domestic transfer pricing has been reduced, clause (i) of Section 92BA was omitted by Finance Act, 2017 w.e.f. April 1, 2017, with respect to determination of arm’s length price for any payments made to related parties as per Section 40A(2)(b). In this publication we have endeavored to elucidate in a comprehensive manner the whole gamut of the transfer pricing regulation in India and the recent developments in this field. This publication should not be viewed as an exhaustive book but may be considered as a guide to understand the subject from a business perspective and identify areas of potential exposure and manner in which the exposure can be minimised.