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Transfer Pricing Meaning and Implications - International Taxation - Income TaxExtract What is Transfer Pricing ? Transfer pricing is concept traditionally began with the amount charged by one segment of an enterprise for a product or service that it supplied to another segment of the same enterprise. Thus, transfer pricing means the price charged between two or more of a associated enterprises (as explained in section 92A) operating in different countries. The provisions under sections 92 to 92F have been enacted with a view to provide a statutory framework which can lead to computation of reasonable, fair and equitable profit and tax in India so that the profits chargeable to tax in India do not get diverted elsewhere by altering the prices charged and paid in intro-group transactions leading to erosion of Indian tax revenue. Any income arising from an international transaction shall be computed having regard to arm s length price. The transfer price is that price which is arrived at when two associated or related enterprises deal with each other. Since, the enterprises involved are related entitles, they can manipulate prices in a manner whereby the profits are transferred to the entity of that county, where the tax rates are lower. To prevent this erosion of tax which was otherwise leviable in India, these provision have been introduced. These provisions relate to : Computation of income from international transactions having regard to the arm s length price [ Section 92 ] ; Meaning of associated enterprise [ Section 92A ]; Meaning of international transaction [ Section 92B ]; Meaning of specified domestic transactions [ Section 92BA ]; Computation of arm s length prices [ Section 92C ]; Reference to transfer pricing officer [ Section 92CA ]; Power of Board to make safe harbour rules [ Section 92CB ]; Advance pricing agreement [ Section 92CC ]; Effect to advance pricing agreement [ Section 92CD ]; Secondary adjustment in certain cases [ Section 92CE ]; Maintenance and keeping of information and documents by persons entering into international transactions [Section 92D ]; Report from an accountant to be furnished by persons entering into international transaction [ Section 92E ]; Definitions of certain terms relevant to computation of arm s length price [ Section 92F ]; Besides the above , this Chapter also contains the following section relating to avoidance of tax by entering into transaction with non -residents. Section 93: Avoidance of income by transaction resulting in transfer of income to non-residents. Section 94A : Special measures in respect of transaction with persons located in notified jurisdictional area. Section 94B: Limitation of interest deduction in certain cases. Transfer pricing Regulation apply to certain specified domestic transaction also
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