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What Is Transfer Pricing ?
In the Income Tax Act, section 91-92F talks about Transfer Pricing. It covers intra-cross border transactions under the group and specified domestic transactions. Thus it is an important international tax issue for the multinational companies that are operating from India.
Transfer Pricing FAQ
What is country wise reporting in transfer pricing ?
1. Transfer Pricing documentation helps multinational companies to report the annual tax which they do for the country in which they have their business or headquarter. This report is called a CBC report i.e. country by country report.
2. The CBC reporting standards helps the multinational companies and reporting implementation package which consists of model legislation which helps the parent companies who demand CBC report which contains global allocation of profit, taxes paid, and certain activity of global indicators in their jurisdiction or from the companies operating in different countries.
2. The CBC reporting standards helps the multinational companies and reporting implementation package which consists of model legislation which helps the parent companies who demand CBC report which contains global allocation of profit, taxes paid, and certain activity of global indicators in their jurisdiction or from the companies operating in different countries.
What are steps for country to country reporting ?
The Organization for Economic Co-operation and Development (OECD) has laid down certain guidelines on implementing Transfer Pricing Documentation and country by country reporting- timing for CBC reporting-
- The Multinational companies are under obligation to file reports of the fiscal year of 12 months starting from January 1.
- It is a statutory requirement for multinational companies to file their CBC report on a timely basis.
- The Multinational companies are under obligation to file reports of the fiscal year of 12 months starting from January 1.
- It is a statutory requirement for multinational companies to file their CBC report on a timely basis.
Which MNEs are required to file CBC Report ?
All MNE group are required to file CBC report except the following-
There are general exemptions to certain MNE group with annual consolidated revenue of group in the immediately preceding fiscal year is less than 750 Million or equivalent to amount in domestic currency.
There are general exemptions to certain MNE group with annual consolidated revenue of group in the immediately preceding fiscal year is less than 750 Million or equivalent to amount in domestic currency.
What are necessary conditions for obtaining and using CBC report?
Countries who takes part in OECD/G20 BEPS project are required to agree with the following conditions for obtaining and using the CBC Report-
Confidentiality
It is mandatory for every country to maintain confidentiality in the CBC report of each country as it is necessary to maintain as it is equivalent to the protection that would apply such information is delivered to the country under the provisions of Multilateral convention on Mutual Administrative Assistance in Tax matters.
Consistency
There is some guidance which is there in Annex III chapter V of the Transfer Pricing Guidelines which enables the jurisdiction not to ask for either additional information nor it will fail to obtain the information that is written there as per Annex III.
Appropriate Use
Jurisdiction shall appropriately use the information that is provided by the MNEs in the CBC report template which will enable to assess high level transfer pricing issues.
End to End Transfer Pricing
Transfer pricing is a matter of senior tax professionals that perform the inter company transaction which is spread across a broad chain of internal functions and distant offices.
The process of transfer pricing involves multiple hands on taxation, divisional controller, shared common services, information technologies etc.
End to end process for executing Transfer Pricing
It involves following lot of time to examine the multiple internal functions, addressing your procedure, personnel and technology the benefit of which are as follows-
-It is important to meet the statutory requirement timely and efficiently.
-Minimizing the audit risk.
-Maintaining internal policy of the company in a better way.
-Standardised data process and transfer pricing calculation criteria.
-To follow rational information technology procedures and systems.
-Reducing indirect compliance cost.
Financial Services
As we all are aware that financial services are facing challenges in operating due to the global financial charges, crisis, fiscal pressures from governments from all over the world. It could be seen easily that financial services is a complex sector because of the taxation authorities.
Global coordinated documentation
The new transfer pricing documentation by the OCED will definitely and significantly increase the compliance burden to MNEs sector over the coming year.
As we all know that transfer pricing is no longer compliance exercise but it involves strategic tax risk management compliance-
The MNE group will be required to file four tier documentation.
-Master file
-Local file
-CBC report
-Local information returns.
Thus global documentation will increase the burden globally on the procedure which will put pressure in the MNEs to maintain effective and consistent transfer pricing documentation.
Confidentiality
It is mandatory for every country to maintain confidentiality in the CBC report of each country as it is necessary to maintain as it is equivalent to the protection that would apply such information is delivered to the country under the provisions of Multilateral convention on Mutual Administrative Assistance in Tax matters.
Consistency
There is some guidance which is there in Annex III chapter V of the Transfer Pricing Guidelines which enables the jurisdiction not to ask for either additional information nor it will fail to obtain the information that is written there as per Annex III.
Appropriate Use
Jurisdiction shall appropriately use the information that is provided by the MNEs in the CBC report template which will enable to assess high level transfer pricing issues.
End to End Transfer Pricing
Transfer pricing is a matter of senior tax professionals that perform the inter company transaction which is spread across a broad chain of internal functions and distant offices.
The process of transfer pricing involves multiple hands on taxation, divisional controller, shared common services, information technologies etc.
End to end process for executing Transfer Pricing
It involves following lot of time to examine the multiple internal functions, addressing your procedure, personnel and technology the benefit of which are as follows-
-It is important to meet the statutory requirement timely and efficiently.
-Minimizing the audit risk.
-Maintaining internal policy of the company in a better way.
-Standardised data process and transfer pricing calculation criteria.
-To follow rational information technology procedures and systems.
-Reducing indirect compliance cost.
Financial Services
As we all are aware that financial services are facing challenges in operating due to the global financial charges, crisis, fiscal pressures from governments from all over the world. It could be seen easily that financial services is a complex sector because of the taxation authorities.
Global coordinated documentation
The new transfer pricing documentation by the OCED will definitely and significantly increase the compliance burden to MNEs sector over the coming year.
As we all know that transfer pricing is no longer compliance exercise but it involves strategic tax risk management compliance-
The MNE group will be required to file four tier documentation.
-Master file
-Local file
-CBC report
-Local information returns.
Thus global documentation will increase the burden globally on the procedure which will put pressure in the MNEs to maintain effective and consistent transfer pricing documentation.
