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TABLE OF CONTENTS

TABLE OF CONTENTS. Overview of TP. Indian TP vs. OECD TP Guidelines. Indian TP provisions. TP in Practice. FINANCE ACT 2012. Increased penalty Provisions for TP. Scope of TP expanded to include SPECIFIED DOMESTIC TRANSACTIONS (SDT). Power of appeal by Dept. against DRP Order.

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TABLE OF CONTENTS

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  1. TABLE OF CONTENTS

  2. Overview of TP

  3. Indian TP vs. OECD TP Guidelines

  4. Indian TP provisions

  5. TP in Practice

  6. FINANCE ACT 2012 Increased penalty Provisions for TP Scope of TP expanded to include SPECIFIED DOMESTIC TRANSACTIONS (SDT) Power of appeal by Dept. against DRP Order Scope of ‘International Transactions’ retrospectively enlarged to include Guarantees, debts etc. APA introduced Increase in scope of powers of TPO

  7. CIT Vs Glaxo Smithkline Asia (P) Ltd

  8. CIT Vs Glaxo Smithkline Asia (P) Ltd

  9. Section 92BA • any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A; • any transaction referred to in section 80A; • any transfer of goods or services referred to in sub-section (8) of section 80-IA; • any business transacted between the assessee and other person as referred to in sub-section (10) of section 80-IA; • any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of sub-section (8) or sub-section (10) of section 80-IA are applicable; or • any other transaction as may be prescribed

  10. Section 40A(2)(a)

  11. Section 40A(2)(a) – Substantial interest

  12. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Case 1 - Section 40A(2)(b)(ii) Relative Mr. A Mr. B Mr. C Director Director XYZ Ltd. (assessee)

  13. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Case 2 – Section 40A(2)(b)(iii) Relative Relative Mr. A Mr. B - Director Mr. C Substantial interest > 20% XYZ Ltd. (assessee)

  14. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Case 3.1 - Section 40A(2)(b)(iv) Director Relative XYZ Ltd. Mr.A Mr. B Substantial interest > 20% ABC Ltd. – assessee

  15. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Case 3.2 - Section 40A(2)(b)(iv) Substantial interest > 20% XYZ Ltd. DEF Ltd. Substantial interest > 20% ABC Ltd. – assessee

  16. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Case 4 - Section 40A(2)(b)(v) Director XYZ Ltd. Director Mr. A Mr. C Relative Substantial interest > 20% Mr. D ABC Ltd. Assessee

  17. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Case 5.1 - Section 40A(2)(b)(vi) ABC Ltd. Substantial interest > 20% XYZ Ltd.

  18. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Case 5.2 - Section 40A(2)(b)(vi) Relative Mr. A Mr. B Substantial interest > 20% Substantial interest > 20% Director XYZ Ltd. DEF Ltd. ABC Ltd. assessee

  19. Issues with S.40A(2) • Diligence in identification of Specified Domestic Transactions • Benchmarking of MD/Director’s remuneration • Contemporaneous documentation tedious to maintain • Identification of comparables and providing suitable adjustments maybe a herculean task

  20. Section 80A(6)

  21. Section 80A(6) contd…

  22. Section 80-IA(8)

  23. 80-IA(8) example ABC Ltd. Unit A Telecom Business Unit B Manufacturing Business Goods & Services

  24. Section 80-IA(10)

  25. 80-IA(10) example ABC’s Ltd. Infrastructure unit XYZ Ltd. Close connection Goods & Services

  26. Issues with SDT & 80A, 80-IA and 10AA

  27. FAIR MARKET VALUE vs. ALP

  28. FAIR MARKET VALUE vs. ALP

  29. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Example 1: Supply of parts to group companies Group Company Local Manufacturer of Piston Rings Local Manufacturer of Pistons Supply to third-party of piston rings Leading Automobile company (*) OE as well as After-market sales

  30. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Example 2: Payment towards Logo/Brand charges Holding company having ownership of brand/logo/trademarks Logo charges @ 1.25% of sales Group company (Home appl.) Group company (Healthcare) Group company (Insurance) • Benchmarking issues –how to value brand? • Over long period, holding company might be held to derive some benefit from group companies…

  31. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Example 3: Double disallowance under SDT ALP Rs.100 Sale of goods Rs.150 10AA unit of group Non-eligible unit of group - Expenditure (payment) less than ALP - Disallowance of Rs.50/- - Sold at less than ALP - More than ordinary profit made - Disallowance of Rs.50/-

  32. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Example 4: HQ Allocation & Inter-unit HEAD OFFICE / CORPORATE OFFICE Rs.150/- per hour Unit – 1 SEZ UNIT - 2 INSURANCE UNIT – 3 TELECOM Rs.250/- per hour Rs.350/- per hour • Whether head office expenses required to be allocated with markup under Domestic TP? • Will allocation be challenged? • Whether ITES provision by Unit-1 to all other units will come under Domestic TP? Third-party insurance business

  33. Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Director or any other relative of the Director who has substantial interest in the business of the assessee, • The assessee or any relative of the assessee having substantial interest in the business of any other assessee. • The term ‘Substantial interest’ denotes more than 20% of shareholding as per the Explanation clause of Section 40A(2)(b). • Explanation clause of Section 40A(2)(b). Example 5: Interest free loan Interest Free Loan ABC Ltd. Eligible unit of ABC Ltd. Loan given @ 17% Non-Eligible unit of ABC Ltd. - Also extraordinary profit of eligible unit, disallowance possible - As per AO, ALP loan at market @ 12% - subsidiary expenditure on interest is excess

  34. Applicability Of TP provisions to SDT

  35. COMPLIANCES AND PENALTIES

  36. Overview of Penalties Penalty provisions of TP made applicable to SDT New penalty provisions for TP & SDT w.e.f. 01.04.2013 2% of Transaction Value for: a) Non-maintenance of documents b) Non-submission of documents In case of adjustment 100% to 300% of additional tax 2% of Transaction Value for: Non-reporting of transaction b) For incorrect maintenance/submission of documents

  37. CURRENT & ADDITIONAL COMPLIANCE REQUIREMENTS FOR SDT

  38. Section 92D w.r.t SDT

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