Why Transfer Pricing Matters?

Multinational corporations often distribute their business operations across countries. When related parties (like a parent company and its subsidiary) conduct transactions, the pricing can be manipulated to shift profits from high-tax jurisdictions to low-tax jurisdictions, resulting in tax advantages.

To prevent base erosion and profit shifting (BEPS) and to ensure that each country gets its fair share of tax, Transfer Pricing regulations are enforced. The cornerstone of this regulation is the Arm's Length Principle (ALP).

The Arm's Length Principle (ALP)

Under Indian transfer pricing rules, associated enterprises must price their international transactions as if they were taking place between unrelated parties in an open market. This principle ensures fair taxation and prevents manipulation of profits.

To determine the ALP, various prescribed Transfer Pricing Methods are used:

• Comparable Uncontrolled Price (CUP) Method
• Resale Price Method (RPM)
• Cost Plus Method (CPM)
• Profit Split Method (PSM)
• Transactional Net Margin Method (TNMM)
• Other Method prescribed by the Board

The selection of the most appropriate method depends on the nature and class of transaction, availability of comparable data, and other relevant factors.

Objectives and Purpose of Transfer Pricing Regulations

The primary objectives of Transfer Pricing regulations under Sections 92 to 92F are:

• Ensure Tax Compliance
  Prevent the erosion of the Indian tax base through manipulation of intra-group pricing in cross-border transactions.
• Promote Fairness
  Ensure that profits are appropriately reported and taxed in India for transactions with foreign or domestic associated enterprises.
• Enable Accurate Performance Evaluation
  By using accurate transfer prices, companies can evaluate the performance of various units or divisions objectively.
• Efficient Resource Allocation
  Costs incurred and revenues earned are recorded appropriately for each division, allowing proper internal budgeting and planning.
• Reduce Tax Litigation
  By aligning transaction prices with arm's length standards and maintaining robust documentation, companies can reduce the risk of disputes with tax authorities.

Scope of Transfer Pricing Provisions in India

Transfer Pricing regulations apply to:

• International Transactions: Any transaction between two or more associated enterprises where at least one is non-resident.
• Specified Domestic Transactions: Transactions between related domestic entities exceeding ₹20 crores, as introduced through Finance Act 2012.

Covered transactions include:

• Sale/purchase of goods
• Provision of services
• Lending or borrowing of money
• Use or transfer of intangible assets
• Cost-sharing arrangements
• Business restructurings and reorganizations

Our Transfer Pricing Services

At Maksim Consultants, we provide comprehensive, end-to-end Transfer Pricing advisory and compliance services. Our expert team of Chartered Accountants, lawyers, and tax advisors help clients navigate the complex landscape of Indian and global transfer pricing regulations.

Here's how we support our clients:

• 1. Transfer Pricing Planning & Structuring
  Review of your current pricing policies and documentation
  Evaluation of transfer pricing implications in existing business models
  Designing arm's length pricing mechanisms aligned with business realities
  Structuring transactions to minimize exposure to future audits or litigation
• 2. Transfer Pricing Documentation & Reporting
  Preparation of Transfer Pricing Study Reports in compliance with Rule 10D
  Assistance in computing Arm's Length Price (ALP) for all international and specified domestic transactions
  Filing Form 3CEB, as certified by a Chartered Accountant, as required by the Income Tax Act
• 3. Representation & Litigation Support
  Handling Transfer Pricing assessments, audits, and disputes before tax authorities
  Representation before Dispute Resolution Panel (DRP), ITAT, and higher appellate authorities
  Assisting in Advance Pricing Agreements (APA) and Mutual Agreement Procedures (MAP) with other tax jurisdictions
• 4. Compliance & Risk Management
  Ensuring timely compliance with evolving Indian TP regulations and OECD BEPS guidelines
  Identifying potential tax exposures and implementing mitigation strategies
  Internal policy reviews and implementation support for effective transfer pricing systems
• 5. Strategic Advisory
  Guidance on intra-group service charges, royalty arrangements, and cost-sharing models
  Evaluating potential penalty risks under Sections 271AA, 271BA, and 271G
  Benchmarking studies using global and Indian databases

Why Choose Maksim Consultants for Transfer Pricing?

• Expertise in Indian & International Taxation
• Hands-on Experience Across Diverse Industries
• Updated Knowledge of Evolving Laws and OECD Guidelines
• Client-Centric & Confidential Advisory Approach
• Transparent Pricing and Timely Delivery

Conclusion

Transfer Pricing regulations are a critical area of international taxation that requires careful attention, robust documentation, and proactive planning. With increasing scrutiny by tax authorities, businesses must ensure that their inter-company transactions withstand legal and regulatory evaluations.

With a deep understanding of legal frameworks, industry practices, and tax planning, Maksim Consultants is well-positioned to support your organization in managing transfer pricing risks while optimizing tax efficiency.