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Accountants Report
Intensive Study Course on Transfer PricingICAIMumbaiAugust 10, 2011Presented By:
Ms. Vaishali ManeDirector Transfer Pricing ServicesGrant Thornton, India
Agenda
Importance of Form 3CEB
Legislative Framework in India
Form 3CEB Clauses
Recent development
Form 3CEB Flow
Filing requirements in other countries
Revision of Form 3CEB
Management representation Letter
Importance of Form 3CEB
Legislative Framework in India
Form 3CEB Clauses
Recent development
Form 3CEB Flow
Filing requirements in other countries
Revision of Form 3CEB
Management Representation Letter
Legislative Framework
International Transaction Associated Enterprise
Transfer Pricing applies
Study Report
Accountants Report
Importance of Form 3CEB
Legislative Framework in India
Form 3CEB Clauses
Recent development
Form 3CEB Flow
Filing requirements in other countries
Revision of Form 3CEB
Management representation Letter
Importance of a Form 3CEB
•Statutory requirement in India
•Provides a birds eye view of the transfer pricing/transactions of the assessee to the Assessing Officer
('AO')
•Helps the AO to refer the transfer pricing matter to the special transfer pricing cell
•Helps the transfer pricing officer in the audit process
Listing of Associated enterprise
Contains a list of International transactions
Highlights whether the transactions are complex
Contains the value of international transactions
The transfer pricing methods followed
Other aspects of Form 3CEB
•It must be furnished on or before the due date applicable to such person
or filing its return of income for the relevant assessment year;
•No exemption from filing Form 3CEB - Even if international transactions <
1 crore
•Under section 271 BA of the Act, inserted with effect from 1st April 2002, if
a person fails to furnish this report, the Assessing Officer may direct that
such person shall pay by way of penalty, a sum of Rs. 1 Lac
Importance of Form 3CEB
Legislative Framework in India
Form 3CEB Clauses
Recent development
Form 3CEB Flow
Filing requirements in other countries
Revision of Form 3CEB
Management Representation Letter
Form 3CEB Flow
Engagement on assignment
Checklist Verification ProcessIssue
Form 3CEB
Form 3CEB and Clauses in Form 3CEB
Management Representation
Letter
Engagement Process
• Person entering into International transaction to obtain the report from an Accountant
Accountant defined under Section 288 of the Act
– Chartered Accountant’s within the meaning of the Chartered Accountants Act, 1949 (38 of 1949);
– Statutory Auditor
• Communicate with the other accountant who has done examination in the earlier years
• Engagement Letter
• Two or more CA's can do examination
• An accountant responsible for writing or maintenance of accounts should not examine accounts
Initially an email be sent to clients containing a Blank format
/ template of Form 3CEB, Annexure to Form 3CEB,
Management Representation Letter and Appendices to the
same
If the client engagement has already been worked upon in
the last year – attach files of last year
Other files
Information to be verified and data collected - Checklist
S. No. Particulars1 Reconciliation with related party - AS 182 Reconciliation with Forex Transaction with respect to Notes to A/c3 Sample Testing - Trial balance / Ledger A/c4 Sample Invoice check/ debit notes5 PAN card copy available in file6 Form 27 - If applicable7 Signed Audited Financials8 Segmental Financials verified with audited accounts9 Copies of Agreement
10 Budgets/ Forecast11 Management Representation Letter & Appendices thereto12 Tax Assessment inquiry
Form 3CEB
We have examined the accounts and records of ___, having their office at, ____ (PAN: __ relating to the international transactions entered into by the assessee during the previous year ended on ___.
In our opinion, proper information and documents as are prescribed have been kept by the assessee in respect of the international transactions entered into, so far as appears from our examination of the records of the assessee.
The particulars required to be furnished under section 92E are given in the Annexure to this Form. In our opinion and to the best of ourinformation and according to the explanations given to us, the particulars given in the Annexure are true and correct.
Case Study 1
Form 3CEB of a Permanent Establishment ('PE') in India
Legislative Framework in India
Form 3CEB Flow
Form 3CEB Clauses
Importance of Form 3CEB
Filing requirements in other countries
Recent developments
Management Representation Letter
Revision of Form 3CEB
Clauses in Form 3CEB
Particulars of the taxpayer – Clauses 1 to 6
Particulars of AE's with whom the taxpayer has entered into international transaction – Clause 7
Particulars in respect of International transactionsTangible property Clause 8
Intangible property Clause 9
Services Clause 10
Lending and Borrowing Money Clause 11
Mutual Agreement/Arrangement Clause 12
Any other transaction Clause 13
Standard Information to filled up in all clauses
Clauses 1 – 6
• Name of the assesseeNew and old name to be disclosed
• Address of the assesseeIn case of BranchIn case of CompanyIn case of Foreign company or a PE
• Permanent Account Number• Status• Previous Year ended • Assessment year
Clause 7: Details of AE
• Name and addresses AE
• The relevant sub clause of section 92A (2) under which such
relationship is covered should also be provided ;
• In most of the cases, the relationship would fall under sub clause (a) or
(b) out of the thirteen sub clauses;
• Additional care should be taken for cases falling under the other
clauses;
• Deemed AE – Note to be disclosed
Information in respect of Associated Enterprises (AE's) Clause 7
Sr. No. Name and address of AE Nature of relationship with AE (Refer Note 1 Below)
Brief description of AE's business
1 XYZ Corporation USA,P.O Box 661, Linville Road,Mt.Airy, New York,USA nc-27030
100% Subsidiary Company under Section 92A(1)(a) read with Section 92A(2)(a)
Manufacturing & Trading of products
Notes:1 Sections mentioned above refer to sections of the Income-tax Act, 1961.
Clause 7: Details of AE
Clause 8A and 8B: Raw Materials and Finished Goods1. Transactions to be disclosed in Clause 8A and 8B
2. Cross-check the purchase/sale transactions of raw materials / finished goods with AS-
18
3. As regards purchase of raw materials, ascertain whether the same are used further in
the manufacturing process or sold to a third party for manufacture or resold to the AE.
4. See the Ledger Account of the AE for the correctness of the amount
5. Sample Invoices of the product sold
6. Description of the product or terminology for describing the product
Clauses of Form 3CEB
Particulars in respect of Tangible Property - Purchase / Sale of Raw Materials
Clause 8A
Total Amount paid / payable as per
books
Total Amount paid / payable as per Arm's
Length Price (as computed by assessee)
(Refer Note 1 below)
Method Used
[See Section 92C(1)]1 XYZ Corporation USA,
P.O Box 661, Linville Road,Mt.Airy, New York,USA nc-27030
Purchase of Packing material
Nos 523,566 523,566 Transactional Net Margin Method ('TNMM')
Notes:1
2 Although the quantities of spare parts/ consumables/ packing materials have been stated they are of different grades.
As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the mostappropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that theprices of international transactions of the assessee were at arm’s length as provided under section 92C of the Income-tax Act, 1961.Accordingly, it was considered reasonable to use the book values of international transactions as representative of arm’s lengthprice of all such transactions.
(Rs.)
Sr. No. Name and address of AE Description of transaction
Quantity purchased
(Refer Note 2 below)
Clauses of Form 3CEB
Particulars in respect of Tangible Property – Import / Export of Finished Goods
Clause 8B
Total Amount received /
receivable as per books
Total Amount received /
receivable as per ALP
(Refer Note 1 below)
Method Used
1 XYZ Corporation USA,P.O Box 661, Linville Road,Mt.Airy, New York,USA nc-27030
Sale of Finished Goods
Manufacturing and Export of ______
8,624,472 274,963,573 274,963,573 Transactional Net Margin Method ('TNMM')
Notes:1
2 Although the quantities of socks have been stated they are of different grades.
Sr. No.
As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to bethe most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it wasconcluded that the prices of international transactions of the assessee were at arm’s length as provided under section 92Cof the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactionsas representative of arm’s length price of all such transactions.
(Rs.)
Quantity Sold in Pairs
(Refer Note 2 below)
Class of Transaction
Description of transaction
Name and address of AE
Clause 8C: Tangible Movable/Immovable Property1. Disclose the details of Assets purchased / sold
2. Review the Asset Purchase Agreement
3. Valuation certificate issued by an expert
4. Shares purchased /sold
5. Free of cost assets
6. Assets purchased abroad and sold to India on back to back basis
7. Transfer of assets to India at Book Value and the relevant documents
8. Documents related to customs valuation
9. Some examples
Clauses of Form 3CEB
Particulars in respect of Tangible Moveable/Immoveable Property - Purchase / sale of Capital Assets
Clause 8C
Total Amount paid / payable as
per books
Total Amount paid / payable as per
Arm's Length Price (as computed by
assessee)(Refer Note 1 below)
Method Used
[See Section 92C(1)]1 XYZ Corporation USA,
P.O Box 661, Linville Road,Mt.Airy, New York,USA nc-27030
Purchase of Fixed Assets
Import of plant & Machinery
1 No. 13,956 13,956 Comparable Uncontrolled Price Method ('CUP')
Notes:1 As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontrolled Price Method was determined to be the most appropriate
method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of internationaltransactions of the assessee were at arm’s length as provided under section 92C of the Income Tax Act, 1961. Accordingly, it was consideredreasonable to use the book values of international transactions as representative of arm’s length price of all such transactions.
(Rs.)
Sr. No. Name and address of AE
Description of property and
nature of transaction
Class of Transaction
Number of units of each category
of moveable / immovable
property
Clause 9: Intangible property
• International transaction(s) in respect of purchase/sale/use of
intangible property such as know-how, patents, copyrights, licenses,
etc• For royalty
• CUP is the preferred method (where we find comparable agreements using Royalty Stat, Lexis Nexis etc.)
• IF CUP is not undertaken, TNMM could be used as the most appropriate method to test the arm’s length nature of royalty payment (assuming aggregation of transactions is possible)
• RBI approvals?
Clause 9: Intangible property
Obtain and review the agreements.
Ascertain the nature of benefits received from payment of royalty , designs, technical
drawings, know how etc.
Obtain Section 195 certificate, if necessary.
To ascertain the impact of royalty payment in internal / external TNMM, review impact of
royalty payments on the profitability of the relevant segment.
Check if there is any CUP (royalty paid to third party before entering into contract with group
entity). Also, check CUP in other countries ( if applicable)
Review Group policy to ascertain if any other group entity that avails same / similar technical
know-how at prescribed rate.
Verify the calculation of royalty payments.
Verify TP Report of the overseas entity ( if any)
Clauses of Form 3CEB
Particulars in respect of transactions in Intangible PropertyClause 9
Sr. No.
Name and address of AE with whom the
international transaction has been entered into
Description of each transaction
Total Amount paid / payable as per
books(Refer Note 2 below)
Total Amount paid / payable as per Arm's
Length Price (as computed by
assessee) (Refer Note 1below)
Method used for determining the arm's
length price
1 XYZ Inc1313, N. Market Street, Wilmington DE 19894-0001, UK.
Royalty for Technical know-how
6,828,753 6,828,753 Comparable Uncontrolled Price Method.
Notes:1 As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontolled Price Method was
determined to be the most appropriate method prescribed under Section 92C of the Income Tax Act, 1961. On thebasis of the study, it was concluded that the prices of international transactions of the assessee were at arm’s lengthas provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use thebook values of international transactions as representative of arm’s length price of all such transactions.
Clause 10: Services
Covers international transaction(s) in respect of services such as
financial, administrative, technical, commercial services, etc
Review the Agreements for rendering /receiving services
• Nature of services rendered
• Compensation model
• Ownership of IP
• Payment terms comparable terms
Group Policy
Ledger Accounts, Invoices
Clause 10: Services
Verify on a test check basis the documents for services availed:• Emails• Minutes of conference calls in case of any
advice received• In case of actual visits of foreign
employees, details of tickets, hotel bills, services rendered while in India
Review TDS certificates, if any
Clauses of Form 3CEB
Particulars in respect of services provided / availed off Clause 10
As per books of accounts
Arms' length price as computed by the assessee
(Refer Note 1)[See Section 92C(1)]
1 XYZ Inc. 101,Main Street, 16th Floor, Cambridge. Massachusetts -02142 ,USA
Rendering of Software Devlopment services
159,030,979 159,030,979 Transactional Net Margin Method
Notes:1
Name and address of AE with whom the international transaction has been
entered intoSr. No.
Amount received or receivable for services provided to AE
As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the most appropriate method prescribed under Section 92C of the Income Tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arm’s length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arm’s length price of all such transactions.
(Rs.)
Method used for determining the arm's
length price
Description of services provided to
AE
Clause 11: Lending and Borrowings
International transaction(s) in respect of granting/receiving loans/ advances• Name and address of AE• Nature of financing arrangement• Currency • Interest rates
Clause 11: Lending and Borrowings
Review the loan agreements.
Refer to AS-18 Related Party Transactions disclosures for loan transactions.
Check for loans taken/given and repaid during the year itself
Interest free loans given by Indian entity
• Case Laws – Perot Systems TSI India Private Limited
• Case Laws – VVF Limited
In case of Interest free loans given, examine the possibility of adjustment.
Insist on a robust loan/interest rate benchmarking to mitigate possible risk
exposure.
Clauses of Form 3CEB
Particulars in respect of lending / borrowing money – granting / receiving loans / advances to / from associated enterprise
Clause 11
As per books of Accounts
Arm's length price as computed by the
assessee[See Section 92C(1)]
1 XYZ Corporation USA,P.O Box 661, Linville Road,Mt.Airy, New York,USA nc-27030
Loan USD LIBOR + 2%
xxxx xxxx Comparable Uncontrolled Price Method
Notes:1
Amount of paid / payable
Sr. No.
As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontolled Price Method was determinedto be the most appropriate method prescribed under Section 92C of the Income Tax Act, 1961. On the basis of the study, itwas concluded that the prices of international transactions of the assessee were at arm’s length as provided under section92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of internationaltransactions as representative of arm’s length price of all such transactions.
( Rs.)
Name and address of AE with whom the
international transaction has been entered into
Nature of transaction
Currency in which
advance was received
Interest rate paid in respect of advance
Method used for determining the
Arm's Length Price
Clause 12: Mutual Agreements /Arrangements
This clause deals with mutual agreement or arrangement for the allocation or apportionment
of, or any contribution to, any cost or expense incurred or to be incurred in connection with a
benefit, service or facility provided or to be provided to any one or more of such enterprises
Particulars to be provided:
• Name and address of the AE
• Description of mutual agreement/ arrangement
• Amount – As per books and ALP
• Method use
Type of transactions covered – Cost Allocation / Cost sharing Arrangements
Review the Agreements
Clauses of Form 3CEB
Particulars in respect of Mutual Agreement or ArrangementClause 12
Total Amount received / receivable as per
books
Total Amount received / receivable as per Arm's
Length Price (as computed by assessee)(Refer Note 1)
1 XYZ Corporation USA,P.O Box 661, Linville Road,Mt.Airy, New York,USA nc-27030
Management Fees xxxx xxxx Transactional Net Margin Method ('TNMM')
Notes:
1 As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arm’s length as provided under Section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arm’s length price of all such transactions.
Rs.
Sr. No. Name and address of AEDescription of mutual
agreement / arrangement
Method Used
Facts of the Case:
• As per Management Services Agreement (MSA), Gemplus India’s AEs would provide need-based services.
• Services rendered were billed by the AEson the basis of time spent with an overall fixed cap.
• Selected the TNMM as the MAM.
• TPO contended that management services fees paid to AEs not deductible as the taxpayer did not prove that commensurate benefits accrued from these services.
• Taxpayer failed to prove the aspects, the management service fees were not at ALP and hence not allowable.
Management Service Fees
Gemplus India Pvt. Ltd.
Gemplus SingaporeGemplus Singapore
Gemplus India Pvt. Ltd.
Gemplus India Pvt. Ltd.
100%
Renders marketing and sales support, customer service support, finance, accounting and administration support and legal support services.
Gemplus’s contention TPO / CIT(A) contention ITAT contentionGemplus’s contention TPO / CIT(A) contention ITAT contention
Commendable Sales turnover achieved, which would not have been possible without services rendered by AE exclusively for the business of the assessee
Commendable Sales turnover achieved, which would not have been possible without services rendered by AE exclusively for the business of the assessee
Taxpayer did not derive any specific benefit from the management services and hence the payment towards management services was not justified and disallowed the expenses claimed.
Taxpayer did not derive any specific benefit from the management services and hence the payment towards management services was not justified and disallowed the expenses claimed.
Imperative on the part of Taxpayer to establish that the payment were made commensurate to the volume and quality of services and such cost are comparable.
Imperative on the part of Taxpayer to establish that the payment were made commensurate to the volume and quality of services and such cost are comparable.
There was no material on records to show that no services were rendered and that the payments were excessive compared to analogous transaction.
There was no material on records to show that no services were rendered and that the payments were excessive compared to analogous transaction.
MSA has been entered before the FY, and hence not possible to contemplate the nature and volume of services and their compensation
MSA has been entered before the FY, and hence not possible to contemplate the nature and volume of services and their compensation
No details available on records with respect to the nature of services rendered by the AE to Taxpayer and, hence, the TPO was justified.
No details available on records with respect to the nature of services rendered by the AE to Taxpayer and, hence, the TPO was justified.
Management Service Fees
Gemplus India Pvt. Ltd.
Gemplus’s contention TPO / CIT(A) contention ITAT contentionGemplus’s contention TPO / CIT(A) contention ITAT contention
Employed a handful of persons in India and all the technical expertise was provided by the AE on a need basis.
Employed a handful of persons in India and all the technical expertise was provided by the AE on a need basis.
Taxpayer already has qualified personnel in its service in India and the Taxpayer has already incurred expenditure for similar services.
Taxpayer already has qualified personnel in its service in India and the Taxpayer has already incurred expenditure for similar services.
TNMM, could not be accepted to determine the AL nature of the services fees as the payment terms were independent of the nature or volume of services
TNMM, could not be accepted to determine the AL nature of the services fees as the payment terms were independent of the nature or volume of services
Services rendered by the AE were billed on the basis of the time spent for services rendered to the Taxpayer, with an overall fixed cap.
Services rendered by the AE were billed on the basis of the time spent for services rendered to the Taxpayer, with an overall fixed cap.
Cost has been apportioned by the AE for different country-centres on a mutually agreed basis and not on the basis of actual services rendered.
Cost has been apportioned by the AE for different country-centres on a mutually agreed basis and not on the basis of actual services rendered.
TPO was justified.
Taxpayer failed to prove the benefit test, the management services fees was not at arm’s length and hence not allowed.
TPO was justified.
Taxpayer failed to prove the benefit test, the management services fees was not at arm’s length and hence not allowed.
Benefit test and robust documentation are keys for proving management fees to be at ALP
Benefit test and robust documentation are keys for proving management fees to be at ALP
Management Service Fees
Gemplus India Pvt. Ltd.
Clause 13: Other Transactions
Any other international transaction not specifically referred to above
Transactions reported in clause 13 pertain to re –imbursements of
expenses
Free of cost transactions disclosed by way of a note
Documentary evidence to be reviewed:• Nature of reimbursement of expenses – description
• Debit notes to understand description of expenses charged / recovered
• Support documents and vouchers
Clauses of Form 3CEB
Particulars in respect of any other transactions -Reimbursements / Others Receipts / Other payments
Clause 13
Total Amount paid / payable as per books
Total Amount paid / payable as per Arm's
Length Price (as computed by assessee)
(Refer Note 1)
Method Used
[See Section 92C(1)]1 XYZ Corporation USA,
P.O Box 661, Linville Road,Mt.Airy, New York,USA nc-27030
Reimbursement for travelling
18,025 18,025 Comparable Uncontrolled Price Method ('CUP')
Notes:
Sr. No. Name and address of AEDescription of each
transaction
Rs.
As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontrolled Price Method was determined to be the mostappropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices ofinternational transactions of the assessee were at arm’s length as provided under Section 92C of the Income-tax Act, 1961. Accordingly, itwas considered reasonable to use the book values of international transactions as representative of arm’s length price of all suchtransactions.
Refer Note 2 below
Legislative Framework in India
Form 3CEB Flow
Form 3CEB Clauses
Importance of Form 3CEB
Recent development
Filing requirements in other countries
Management Representation Letter
Revision of Form 3CEB
Recent development
Amadeus India Pvt. Ltd. Facts of the Case:
• Responsible for providing software access to the subscribers of the Amadeus products and computer database within the Indian sub-continent.
• TNMM selected as MAM- PLI selected as OP/TC
- TPO did not raise any objection to the method adopted or computation of ALP
• TPO alleged that assessee had incurred more than normal sales and marketing expenses to build “aMaDEUS” brand, which is legally owned by Amadeus Spain.
• TPO compared AMP/Sales% of 3 companies of 12.16% with assessee’s AMP% of 40.87%, hence adding a mark-up of 10% on more than normal marketing expenses
• TPO passed a draft order, later confirmed by DRP
Amadeus Associated Enterprises “AEs”
Amadeus India Pvt. Ltd.“Amadeus India”
Provides data processing and related services to its AEs.
Amadeus’s contention TPO / CIT(A) contention ITAT contentionAmadeus’s contention TPO / CIT(A) contention ITAT contention
Incurred normal sales and marketing expenses as the same were not disallowed by AO u/s 37(1)
Incurred normal sales and marketing expenses as the same were not disallowed by AO u/s 37(1)
Assessee had incurred more than normal sales and marketing expenses to build brand in India, which is legally owned by Amadeus Spain.
Assessee had incurred more than normal sales and marketing expenses to build brand in India, which is legally owned by Amadeus Spain.
Deletion of AMP expenditure related adjustments made by TPO as he acted beyond his jurisdiction, without approval from CIT
Deletion of AMP expenditure related adjustments made by TPO as he acted beyond his jurisdiction, without approval from CIT
AMP expenses were 3rd party expenses and the same were not recognised by the assessee as an international transaction in Form 3CEB
AMP expenses were 3rd party expenses and the same were not recognised by the assessee as an international transaction in Form 3CEB
TPO did not conclude that AMP expenditure incurred is an “international transaction”
TPO did not conclude that AMP expenditure incurred is an “international transaction”
AMP expenditure should be considered as an “international transaction” within meaning of Section 92B(1) of the Act
AMP expenditure should be considered as an “international transaction” within meaning of Section 92B(1) of the Act
When a file is referred to TPO, the AO is referring to the entire gamut of international transactions
When a file is referred to TPO, the AO is referring to the entire gamut of international transactions
The role of the TPO is restricted to only that transaction, referred to him by the AO (CBDT Inst. 3 of 2003)
The role of the TPO is restricted to only that transaction, referred to him by the AO (CBDT Inst. 3 of 2003)
Plain reading of Sec. 92CA(1) nowhere reveals that TPO can take any transaction suo motofor verification and adjustment
Plain reading of Sec. 92CA(1) nowhere reveals that TPO can take any transaction suo motofor verification and adjustment
Marketing Intangibles
Amadeus India Pvt. Ltd.
Amadeus’s contention TPO / CIT(A) contention ITAT contentionAmadeus’s contention TPO / CIT(A) contention ITAT contention
Avoidance of tax was not condition precedent for invoking TPR
Avoidance of tax was not condition precedent for invoking TPR
The TPR does not require the ‘form’ but also the overall arrangement/substance of the transactions before determining ALP.
Assessee incurred costs under a mutual agreement, not in writing, but proved from the conduct of the parties
The TPR does not require the ‘form’ but also the overall arrangement/substance of the transactions before determining ALP.
Assessee incurred costs under a mutual agreement, not in writing, but proved from the conduct of the parties
Bright Line Test done by TPO by applying AMP/Sales as a base for benchmarking is not 1 of the 5 methods prescribed under TPR in India
Bright Line Test done by TPO by applying AMP/Sales as a base for benchmarking is not 1 of the 5 methods prescribed under TPR in India
Proposed budget 2011 gives TPO the power to evaluate transaction not referred by AO
Proposed budget 2011 gives TPO the power to evaluate transaction not referred by AO
Marketing Intangibles
Amadeus India Pvt. Ltd.
Recent development
Open Technologies India Private Limited Facts of the Case:
• Assessee had not furnished Accountants Report before the due date of filing ROI for AY 2006 – 07
• Had obtained the Form 3CEB on September 1, 2006 which was beforethe due date
• Penalty proceedings under Section 271 BA of the Act were initiated by the AO
Taxpayer’s contention AO / CIT(A) contention ITAT contentionTaxpayer’s contention AO / CIT(A) contention ITAT contention
Online filing of return was mandatory for the first time –None of the documents were filed like audited accounts, TDS certificate, Form3CEB etc
Online filing of return was mandatory for the first time –None of the documents were filed like audited accounts, TDS certificate, Form3CEB etc
AO did not accept the contention and levied the penalty under Section 271 BA
AO did not accept the contention and levied the penalty under Section 271 BA
Assessee had obtained the Form 3CEB before the due date of return filing
Assessee had obtained the Form 3CEB before the due date of return filing
Form 3CEB filed in the due course of assessment. Affidavit from Director and CA were submitted that Form 3CEB was obtained on 1 -9 -2006
Form 3CEB filed in the due course of assessment. Affidavit from Director and CA were submitted that Form 3CEB was obtained on 1 -9 -2006
Section 273B provides that no penalty under Section 271 BA will be leviable if there is reasonable case for failure to comply
Section 273B provides that no penalty under Section 271 BA will be leviable if there is reasonable case for failure to comply
Assessee was under genuine belief that Annexures were not to be filed with the return.
Assessee was under genuine belief that Annexures were not to be filed with the return.
Open Technologies India Private Limited
CIT (A) upheld the penalty levied by the AO
CIT (A) upheld the penalty levied by the AO
Penalty was deletedPenalty was deleted
Importance of Form 3CEB
Legislative Framework in India
Revision of Form 3CEB
Form 3CEB Clauses
Form 3CEB Flow
Recent development
Management Representation Letter
Filing requirements in other countries
Facts of the Case:
• K Ltd, M Ltd and C Ltd are separate legal entities in India
• They have filed their Form 3CEB for April 2009 to March 2009 by September 2009
• The group wants to merge K ltd and M Ltd into C Ltd and have a single entity in India
• The Scheme of Amalgamation is approved by the High Court in October 2009 w.e.f January 1, 2009.
Revision of Form 3CEB
AEAE
K LtdK Ltd
Out of India
Prior to Merger
In India
M LtdM Ltd C LtdC Ltd
Revision of Form 3CEB
AEAE
Out of India
Post Merger
In India
C LtdC Ltd
K LtdK Ltd
M LtdM LtdApril to Dec
April to Dec
April to March
Form 3CEB filed by the entities are revised
Form 3CEB filed by the entities are revised
• No specific provisions in the Income tax Act for revision of Form 3CEB
• Guidance Note silent on this
• No legal precedent
• Revision of Form 3CEB – transaction affects the income reported in the Return of Income – Section 139 (5)
Revision of Form 3CEB
• Transaction not disclosed
• Wrong amount has been disclosed
• Wrong AE details have been disclosed
• Original 3CEB based on unaudited financials and the revised 3CEB is based on audited financials
Revision of Form 3CEB
Some examples
Importance of Form 3CEB
Legislative Framework in India
Form 3CEB Clauses
Filing requirements in other countries
Form 3CEB Flow
Recent Developments
Revision of Form 3CEB
Management Representation Letter
Management Representation Letter
•Information and Documents maintained in the Study Report
•Ownership Structure
•Details of Associated Enterprises and international transactions with the
associated enterprises
•Segmental Financials of the Company
•Confirmation on foreign currency disclosures
•Confirmation on re - imbursements of expenses
Legislative Framework in India
Form 3CEB Clauses
Form 3CEB Flow
Recent developments
Importance of Form 3CEB
Filing requirements in other countries
Revision of Form 3CEB
Management Representation Letter
Filing Requirements – US and UK
•Filing of Form 5471 and 5472•Copy of CSA Statement filed
US
UK •None Specified
Filing Requirements – Western Europe
•Disclose details of RPT in forms filed for returnsSpain
•Returns include one question whether any RPT Netherlands
•State whether TP document maintained•Total amount of all RPTItaly
•NoneGermany
•NoneFrance
Filing Requirements – Asia
•Transactions with related party to be disclosedMalaysia
•Form GCN-01/QLT to be filed •Form to be filed within 90 days from year end
Vietnam
•No disclosureThailand
•3A Identity of related party and transaction detail •3A-1 Existence of study to support ALP
Indonesia
Thank you