Transfer pricing refers to the pricing of goods, services, or intangibles transferred between associated enterprises (AEs), especially in cross-border transactions. It plays a pivotal role in determining tax liabilities across jurisdictions and prevents profit shifting to low or no-tax areas.
🎯 Key Reasons:
⚖️ Regulatory adherence under Income Tax Act, 1961
🌍 Prevents Base Erosion and Profit Shifting (BEPS)
💼 Maintains transparency with tax authorities
💸 Avoids double taxation
🛡️ Reduces audit risk and penalties
📘 In India, Section 92 to 92F of the Income Tax Act and Rule 10A to 10E of Income Tax Rules regulate transfer pricing.
🚨 Key Compliance Elements:
Arm’s Length Price (ALP)
Documentation & Disclosure (Form 3CEB)
Advance Pricing Agreements (APA)
Safe Harbour Rules
🗓️ Applicable if:
There are international transactions
Or specified domestic transactions exceeding ₹20 crore
🛒 Goods and Services:
Export/import of goods, software, royalties, technical services
🧠 Intangible Assets:
Brand usage, R&D, licensing fees
💰 Financial Transactions:
Loans, guarantees, or corporate guarantees
💼 Intra-group Services:
Management fees, back-office support
🏭 Contract Manufacturing:
Assembly and processing between subsidiaries
Under Rule 10B, six methods are prescribed:
| 💡 Method | 🔍 Description |
|---|---|
| Comparable Uncontrolled Price (CUP) | Compares price charged in a similar uncontrolled transaction |
| Resale Price Method (RPM) | Uses resale margin to derive the ALP |
| Cost Plus Method (CPM) | Adds markup to costs incurred |
| Profit Split Method (PSM) | Splits total profit among entities based on functions/assets |
| Transactional Net Margin Method (TNMM) | Compares net margins with comparable companies |
| Other Method | Any method that justifies ALP under Rule 10AB |
✅ Most Common: TNMM
👨⚖️ CAs play a multi-dimensional role, including:
📊 Analyzing inter-company pricing
🧾 Preparing detailed TP documentation
🔍 Conducting functional analysis (FAR analysis)
🧠 Advising on pricing models
📝 Filing Form 3CEB
🛡️ Representing in audits & disputes
🤝 Supporting APA negotiations
Indian TP regulations mandate:
📁 Mandatory Documentation (Rule 10D):
Organizational structure
Nature of business and industry overview
Description of international/domestic transactions
Functional Analysis (FAR)
Economic analysis with comparables
Pricing method justification
📤 Filing Requirements:
| Form | Purpose |
|---|---|
| Form 3CEB | Report by CA on international/domestic transactions |
| Form 3CD (Clause 13, 33) | Audit report under section 44AB |
| Master File (Form 3CEAA) | Group-wide information |
| Country-by-Country Report (Form 3CEAD) | For MNCs with turnover > ₹6400 crore |
📆 Due Date: Same as ITR filing (generally 31st October)
💼 CAs assist in:
Identifying risky transactions
Reviewing transfer pricing policies
Preparing for TP audits
Responding to TP scrutiny notices
Drafting and filing responses to Dispute Resolution Panels (DRP)
🚨 India has a growing trend of TP audits. Professional support ensures preparedness.
| ⚠️ Non-Compliance | 💸 Penalty |
|---|---|
| Failure to maintain documentation | 2% of transaction value |
| Inaccurate Form 3CEB reporting | ₹1,00,000 |
| Non-filing of Form 3CEAA/3CEAD | ₹500/day to ₹5,000/day |
| Tax Adjustments | Interest u/s 234B/C, Penalty up to 100% of tax |
🧨 CAs help mitigate such risks through timely and accurate compliance.
🎯 Services offered by professional CA firms:
🧾 Preparation of Transfer Pricing Studies
📊 Benchmarking Analysis
🧠 Advisory on Cross-Border Structures
📄 Preparation of Intercompany Agreements
🛡️ Litigation and Representation
🤝 APA & MAP assistance
🧮 Profit Attribution and Reconciliation
Scenario:
TechGlobal provided R&D services to its U.S. parent and charged $1M as fees.
Issue:
TP audit flagged undercharging. CA firm stepped in.
Actions Taken:
FAR analysis performed
TNMM benchmarking done using databases like Prowess & Capitaline
Price adjusted to ALP
Proper documentation filed
Outcome:
No adjustment. Clean tax clearance.
✅ Lesson: Right CA advice prevents disputes and tax losses.
📌 TP is crucial for:
💊 Pharmaceuticals
🖥️ IT & ITES
🏭 Manufacturing
🚚 Logistics
📦 E-commerce
📺 Media & Entertainment
🏦 Financial Services
✔️ Early Planning: TP policies must align with business models
✔️ Robust Documentation: Maintain data trail
✔️ Annual Review: Reassess pricing each year
✔️ Intercompany Contracts: Legally binding agreements
✔️ Engage Experts: Partner with CA firms with global exposure
🎯 Look for:
| 📌 Criteria | ✅ Must-Have |
|---|---|
| 📚 Expertise | In TP laws & international taxation |
| 🌍 Global Reach | Network with international firms |
| 🧾 Documentation Skills | Experience in Form 3CEB, benchmarking |
| ⚖️ Legal Support | Representation in disputes |
| 💬 Reviews | Client success stories |
✨ Taxaj and similar CA platforms offer:
📈 Expert-led TP studies
🧠 Advisory across 40+ sectors
💼 End-to-end support (planning to litigation)
🧾 Online dashboards for tracking
🌍 Global affiliate partners for cross-border compliance
🌐 Visit Taxaj’s Transfer Pricing Services to learn more.
Transfer Pricing Compliance is not just a regulatory formality—it’s a strategic necessity in today’s globalized economy. With increasing scrutiny by Indian tax authorities, aligning your intercompany pricing with the arm’s length principle is crucial.
💼 Chartered Accountants play a vital role in safeguarding your business from penalties, tax adjustments, and reputational risks.
✅ Partner with experienced CA firms like Taxaj to ensure robust transfer pricing compliance and peace of mind.