Since 1991, with the liberalization of trade and foreign exchange policy India has started integrating its economy with global economy. This has led to increased cross border flow of goods, services, funds and even intangibles. There was a large inflow of Foreign Direct Investment (FDI). Monetary controls
were relaxed and quantitative import barriers were lifted. Obviously, with the growing MNEs interested in India, it has become imperative for tax authorities in India to take cognizance of transfer pricing issues. It is relevant to note that many of the Indian companies have also become large global players with major acquisitions in recent past and with overseas subsidiaries in many tax jurisdictions
During the last decade, India is now a major opportunity for global businesspeople looking to grow a successful business in India. Liberalization, booming middle class, and employment and the wages growth have made India an appealing destination. Simultaneously, creating a company in India means to browse through the various tax and legal complexities. And one of the main tax legislation that need to be into consideration is the transfer pricing litigation.
In order to curb the practice of avoiding tax audit by the foreign companies in India, a legislation under the name ‘Transfer Pricing Regulation’ has been introduced.
So in a number of articles, Here Neeraj Bhagat & Company has explored various aspects of transfer pricing tax audit. Let us begin with understanding the transfer pricing rules in India.
A transfer pricing study examines the pricing of transactions between related two or more associates. By applying and documenting various test methods, it is determined whether the transactions are conducted under market conditions and survive the scrutiny of the IRS and other tax authorities.
A study of transfer pricing shall justify how a particular method is selected for enterprises and transactions being reviewed.
All Indian companies are required to analyze their international transaction with respect to the Transfer Pricing Regulation and adhere to it by maintaining proper transaction records and documents.