| | AUGUST 20168Consultants Reviewransfer Pricing law in India was introduced in Financial Year 2001-02. In the decade gone by this has resulted in a lot of litigation. Transfer pricing adjustments account for more than 50 percent of the total direct tax litigation. In the year 2015, tax authorities have made a total adjustment of around `46,466 crores.This leaves one pondering with a basic question as to what are the real reasons for such litigations. Is it always the revenue department to be blamed or are there really some lapses at the taxpayer's end? For finding answers to these questions, let us try to understand the very basic concept of transfer pricing. Transfer Pricing simply means that the price at which the transactions are executed between two group companies (commonly called as Associated Enterprises). The revenue department expects that the said transfer price should be equal to the price at which one company would do transactions with another unrelated company (such transaction value is commonly known as arm's length price).Further, real-time documents (commonly known as `contemporaneous documentation') should be maintained to show / prove the arm's length pricing.Most of the Multi-National Companies (MNCs) do follow the above principle of concluding transactions with group companies at an arm's length price as they are treated as separate cost centers having their own set of profitability targets. However, what really happens is, because of the fact that they are group companies, many transactions happen in a very informal manner where verbal discussions take precedence over well documented papers.Another perspective is that MNCs consider overall profitability of its multi locational companies as one group whereas the revenue department views each company in the Group as separate entity. This is where revenue department of each jurisdiction would like to protect the tax base of their respective jurisdiction. This poses a very practical and severe challenge before the corporates of substantiating the arm's length value of the transaction(s).There could also be situations (i) where the transactions are very confidential which result in a resistance to share the related documents with the in-house tax personnel / tax team (ii) no set standards/processes in which transactions actually take place IN MY OPINIONTransfer Pricing ­ an Industry PerspectiveBy Abhinav Sogani, Head - Direct Tax, Finance & Accounts, Volkswagen Group IndiaEstablished in 1975, Volkswagen Group is the second-largest automaker in the world. Volkswagen India Pvt Ltd is a division of the Volkswagen Group India, founded in 2007. Abhinav has more than 13 years of experience in Direct tax function which also includes transfer pricing compliances.T
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