Domestic Transfer Pricing

Section 92BA defines specified domestic transactions which are governed by the TP regulation which states that specified domestic transactions in case of the assessee mean any of the following transactions

  1. Any expenditure incurred or to be incurred in connection with a payment made or to be made to a person referred to in section 40A (2) (b).
  2. Transactions referred to in section 80A.
  3. Any transfer of goods or provision of services as provided in subsection 8 of section 80 – IA.
  4. Any business transaction between the assessee and another person as referred to in subsection 8 of section 80 – IA
  5. Any transactions which have been mentioned under section under chapter VI-A or section 10AA, o a person to whom provisions of subsection 8 or subsection 10 of section 80 IA is applicable
  6. And where the aggregate of such transactions entered into by the assessee in the previous year exceeds 20 crores
  7. Any other transactions as may be prescribed

Threshold Limit

The above provisions shall be applicable only if the aggregate value of the turnover of the above-mentioned transactions exceeds Rs. 20 crore (w.e.f. 1st April 2017 i.e. A.Y. 2017-18 onwards)I.e. if the threshold limit has crossed the taxpayer will be required to comply with the TP requirements with reference to all the transactions in spite of the fact that value of the transactions under any of the head may be small. Therefore, there is no threshold for every head of the definition

Applicability of Domestic Transfer Pricing?

  1. Tax Payers cannot apply transfer pricing to specific domestic transactions to reduce the tax liability
  2. Monetary threshold limit of 20 crores is to be calculated on the basis of the aggregate of payments and receipts to which these provisions apply.
  3. Definition of Related party includes expenses disallowed to cover the entities which have common beneficial ownership
  4. Transfer pricing is mostly applicable to international transactions and specified domestic transactions and specifically excludes Advance Pricing Agreement provisions.

Concept of Arm’s Length Price(ALP)

The concept of ALP has also been extended to Specified Domestic Transactions. ALP is defined as the price which is applied to proposed to be applied in a transaction the assessed and any other unrelated person in uncontrollable condition

Methods of Computing ALP

  1. Comparable uncontrolled price method
  2. Resale price method
  3. Cost plus method
  4. Profit Split method
  5. Transactional net margin method
  6. Such other method as may be notified by the Board

Documentation requirements for Domestic Transfer Pricing transactions

Company Related
  1. Profile of the company
  2. Profile of the group companies
  3. Profile of the unit claiming tax holiday
  4. Profile of all the related parties
  1. Terms of the transaction
  2. Functional analysis specifying functions, assets and risk
  3. Economic analysis containing method, selection and comparable benchmarking
  4. Budgets and comparable
Transaction Related
  1. Agreements
  2. Invoices
  3. Pricing Related correspondence such as email, letters etc.
Other supporting
  1. Official publication report by government, Stock Exchanges
  2. Financial Statement