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 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

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 :

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

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).

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.

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.

a. General method

b. Resale price method

c. Profit Split method

d. Cost plus method

e. Transaction net margin method

An item's transfer price is the sales price charged for a good or service in a transaction between two entities under common ownership. Its standard cost, on the other hand, is simply the anticipated cost of all of the item's component parts.

Transfer pricing is not illegal. What is illegal is transfer mispricing or transfer pricing manipulation.

Domestic transfer pricing is applicable on transactions between two related (associated) parties within the same taxable territory, whereas in International transfer pricing, the transaction is between a resident and non-resident related party.

A company pays for a transfer pricing study to provide the economic analysis necessary to support its transfer pricing decisions.


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