✅ What is Transfer Pricing?
Transfer pricing refers to the pricing of goods, services, or intangibles transferred between associated enterprises across international borders.
For Indian companies with foreign subsidiaries, joint ventures, or branches, transfer pricing ensures that income is appropriately reported and taxed in each jurisdiction to avoid profit shifting or base erosion.
🌐 Applicability in India
Transfer pricing regulations apply to:
- International Transactions between two or more associated enterprises (AEs)
- Specified Domestic Transactions (if aggregate exceeds ₹20 crore)
- Associated Enterprises (AEs) defined under Section 92A of the Income Tax Act, 1961
📚 Transfer Pricing Methods in India
As per Section 92C of the Income Tax Act, the following methods are recognized:
| Method | Suitable When |
|---|---|
| Comparable Uncontrolled Price (CUP) | Identical transactions exist in open market |
| Resale Price Method (RPM) | Distributor resells without value-addition |
| Cost Plus Method (CPM) | Manufacturing or service providers |
| Profit Split Method (PSM) | Integrated operations or joint ventures |
| Transactional Net Margin Method (TNMM) | Most commonly used method in India |
| Other Method | Based on valid data & economic principles |
📄 Key Documentation Requirements (3-Tier)
As per Rule 10D and OECD BEPS Action 13, Indian entities must maintain:
1. Local File
- Details of specific international transactions
- Functional analysis of AEs
- Method selection and justification
2. Master File (Form 3CEAA)
- Overview of the global business operations of the MNC group
- Must be filed by Indian constituent entities if:
- Consolidated revenue > ₹500 crore
- International transactions > ₹50 crore (intangibles > ₹10 crore)
3. Country-by-Country Report (Form 3CEAD)
- Applies if consolidated group revenue exceeds €750 million
- Must be submitted by the parent or alternate reporting entity
📆 Important Filing Deadlines
| Form | Description | Due Date |
|---|---|---|
| Form 3CEB | Accountant's Report | 1 month before ITR due date (typically 31st Oct) |
| Form 3CEAA | Master File (Part A & B) | 30th Nov of assessment year |
| Form 3CEAD | Country-by-Country Report | 12 months from end of reporting FY |
🔎 Audit and Risk Areas
Tax authorities closely review:
- Loss-making AEs
- Reimbursements without mark-ups
- Royalty payments or management fees
- Loans or guarantees without arm's length interest rates
- Profit shifting to low/no-tax jurisdictions
Transfer pricing audits can be initiated under Section 92CA by referring the case to a Transfer Pricing Officer (TPO).
⚠️ Penalties for Non-Compliance
| Default | Penalty |
|---|---|
| Failure to maintain documentation (Sec 271AA) | 2% of transaction value |
| Failure to report transactions (Sec 271BA) | ₹1,00,000 |
| Incorrect reporting (Sec 271G) | 2% of transaction value |
| Under-reporting due to TP adjustment (Sec 270A) | 50% of tax on under-reported income |
🧾 Best Practices for Compliance in 2025
- Prepare contemporaneous documentation—don’t wait for year-end.
- Conduct benchmarking studies using updated databases.
- Maintain intercompany agreements and track actual flows.
- Align with OECD and Indian TP rules for consistency.
- Consult a qualified CA or TP expert annually for reviews and updates.
📌 Conclusion
Transfer pricing compliance isn't just a regulatory obligation—it’s a strategic necessity for Indian MNCs. With global regulations tightening and tax authorities becoming more data-savvy, a proactive approach to documentation, pricing methods, and audit readiness will ensure peace of mind and optimized tax positions.
💼 Need Expert Guidance on Transfer Pricing?
Verotus Finlegal Solutions LLP provides end-to-end Transfer Pricing support, from documentation to audits.
📍 Based in Kolhapur, Maharashtra
🌐 Visit us: www.verotusllp.com
📞 Call us: +91-7066336680
