In order to prevent profits from being shifted abroad (tax-free), the Indian tax authorities examine cross-border transactions between affiliated companies with great care.
The taxpayer (the Indian company) must ensure that services between affiliated companies (e.g. transactions between parent and subsidiary companies) are carried out in accordance with arm's length principle are to be accounted for. From customary (at arm's length) is when independent companies conclude a deal on similar terms. This must be documented accordingly and – now actively – reported to the Indian tax authorities.
Masterfile reporting affects almost every company
Because after the introduction of the three-stage transfer pricing documentation and the so-called Masterfile concept As of March 31, 2018, all Indian subsidiaries must submit a so-called master file to the local tax authority. Form 3CEAA must be submitted electronically to the Income Tax Office by November 30 of the following year.
Companies whose parent company generates over 5 billion rupees in global sales AND makes at least 500 million rupees in international transfer payments must disclose their transfer pricing system in detail. This regulation affects almost all corporations, meaning that there is always an urgent need for action.
If correct transfer pricing cannot be verified as part of a company tax audit, the profits are subsequently adjusted upwards, so that higher taxes are due and penalty surcharges have to be paid.
If you have any further questions about transfer pricing, our team at WB Finance & Compliance is available to you at any time.
