Beruflich Dokumente
Kultur Dokumente
ICAI Mumbai August 10, 2011 Presented By: Ms. Vaishali Mane Director Transfer Pricing Services Grant Thornton, India
Agenda
Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management representation Letter Filing requirements in other countries
Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management Representation Letter Filing requirements in other countries
Legislative Framework
InternationalTransaction
AssociatedEnterprise
TransferPricingapplies
StudyReport
AccountantsReport
Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management representation Letter Filing requirements in other countries
Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management Representation Letter Filing requirements in other countries
Engagement on assignment
Checklist
Verification Process
Engagement Process
Person entering into International transaction to obtain the report from an Accountant Accountant defined under Section 288 of the Act Chartered Accountants within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); Statutory Auditor Communicate with the other accountant who has done examination in the earlier years Engagement Letter Two or more CA's can do examination An accountant responsible for writing or maintenance of accounts should not examine accounts
Email
Initially an email be sent to clients containing a Blank format / template of Form 3CEB, Annexure to Form 3CEB, Management Representation Letter and Appendices to the same If the client engagement has already been worked upon in the last year attach files of last year Other files
Form 3CEB
We have examined the accounts and records of ___, having their office at, ____ (PAN: __ relating to the international transactions entered into by the assessee during the previous year ended on ___. In our opinion, proper information and documents as are prescribed have been kept by the assessee in respect of the international transactions entered into, so far as appears from our examination of the records of the assessee. The particulars required to be furnished under section 92E are given in the Annexure to this Form. In our opinion and to the best of our information and according to the explanations given to us, the particulars given in the Annexure are true and correct.
Case Study 1
Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent developments Revision of Form 3CEB Management Representation Letter Filing requirements in other countries
Particulars of the taxpayer Clauses 1 to 6 Particulars of AE's with whom the taxpayer has entered into international transaction Clause 7 Particulars in respect of International transactions
Tangible property Intangible property Services Lending and Borrowing Money Mutual Agreement/Arrangement Any other transaction Clause 8 Clause 9 Clause 10 Clause 11 Clause 12 Clause 13
Clauses 1 6
Name of the assessee New and old name to be disclosed Address of the assessee In case of Branch In case of Company In case of Foreign company or a PE Permanent Account Number Status Previous Year ended Assessment year
Clause 7: Details of AE
Name and addresses AE The relevant sub clause of section 92A (2) under which such relationship is covered should also be provided ; In most of the cases, the relationship would fall under sub clause (a) or (b) out of the thirteen sub clauses; Additional care should be taken for cases falling under the other clauses; Deemed AE Note to be disclosed
Clause 7: Details of AE
Clause 7 Information in respect of Associated Enterprises (AE's)
Sr. No. 1 Name and address of AE XYZ Corporation USA, P.O Box 661, Linville Road, Mt.Airy, New York, USA nc-27030 Nature of relationship with AE (Refer Note 1 Below) 100% Subsidiary Company under Section 92A(1)(a) read with Section 92A(2)(a) Brief description of AE's business Manufacturing & Trading of products
Notes: 1
3.
As regards purchase of raw materials, ascertain whether the same are used further in the manufacturing process or sold to a third party for manufacture or resold to the AE.
4. 5. 6.
See the Ledger Account of the AE for the correctness of the amount Sample Invoices of the product sold Description of the product or terminology for describing the product
Sr. No.
XYZ Corporation USA, Purchase of P.O Box 661, Linville Road, Packing Mt.Airy, New York, material USA nc-27030
Notes: 1 As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions. 2 Although the quantities of spare parts/ consumables/ packing materials have been stated they are of different grades.
Sr. No.
Description of transaction
Class of Transaction
XYZ Corporation USA, P.O Box 661, Linville Road, Mt.Airy, New York, USA nc-27030
8,624,472
(Refer Note 1 below) (Rs.) 274,963,573 274,963,573 Transactiona l Net Margin Method ('TNMM')
Notes: 1 As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions. Although the quantities of socks have been stated they are of different grades.
Notes: 1
As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontrolled Price Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income Tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.
RBI approvals?
Notes: 1 As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontolled Price Method was determined to be the most appropriate method prescribed under Section 92C of the Income Tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.
Notes: As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the most 1 appropriate method prescribed under Section 92C of the Income Tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.
In case of Interest free loans given, examine the possibility of adjustment. Insist on a robust loan/interest rate benchmarking to mitigate possible risk exposure.
Notes: 1 As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontolled Price Method was determined to be the most appropriate method prescribed under Section 92C of the Income Tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.
Type of transactions covered Cost Allocation / Cost sharing Arrangements Review the Agreements
Notes: 1 As per the Transfer Pricing study undertaken by the assessee, the Transactional Net Margin Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under Section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.
As per Management Services Agreement (MSA), Gemplus Indias AEs would provide need-based services. Services rendered were billed by the AEs on the basis of time spent with an overall fixed cap. Selected the TNMM as the MAM. TPO contended that management services fees paid to AEs not deductible as the taxpayer did not prove that commensurate benefits accrued from these services. Taxpayer failed to prove the aspects, the management service fees were not at ALP and hence not allowable.
100%
Renders marketing and sales support, customer service support, finance, accounting and administration support and legal support services.
ITAT contention
Imperative on the part of Imperative on the part of Taxpayer to establish that the Taxpayer to establish that the payment were made payment were made commensurate to the volume commensurate to the volume and quality of services and and quality of services and such cost are comparable. such cost are comparable.
There was no material on There was no material on records to show that no records to show that no services were rendered and services were rendered and that the payments were that the payments were excessive compared to excessive compared to analogous transaction. analogous transaction.
MSA has been entered before MSA has been entered before the FY, and hence not possible the FY, and hence not possible to contemplate the nature and to contemplate the nature and volume of services and their volume of services and their compensation compensation
No details available on No details available on records with respect to the records with respect to the nature of services rendered by nature of services rendered by the AE to Taxpayer and, the AE to Taxpayer and, hence, the TPO was justified. hence, the TPO was justified.
ITAT contention
TNMM, could not be accepted TNMM, could not be accepted to determine the AL nature of to determine the AL nature of the services fees as the the services fees as the payment terms were payment terms were independent of the nature or independent of the nature or volume of services volume of services TPO was justified. TPO was justified. Taxpayer failed to prove the Taxpayer failed to prove the benefit test, the management benefit test, the management services fees was not at arms services fees was not at arms length and hence not allowed. length and hence not allowed.
Services rendered by the AE Services rendered by the AE were billed on the basis of the were billed on the basis of the time spent for services time spent for services rendered to the Taxpayer, with rendered to the Taxpayer, with an overall fixed cap. an overall fixed cap.
Cost has been apportioned by Cost has been apportioned by the AE for different countrythe AE for different countrycentres on aamutually agreed centres on mutually agreed basis and not on the basis of basis and not on the basis of actual services rendered. actual services rendered.
Benefit test and robust documentation are keys for proving management fees to be at ALP
Transactions reported in clause 13 pertain to re imbursements of expenses Free of cost transactions disclosed by way of a note Documentary evidence to be reviewed:
Nature of reimbursement of expenses description Debit notes to understand description of expenses charged / recovered Support documents and vouchers
XYZ Corporation USA, P.O Box 661, Linville Road, Mt.Airy, New York, USA nc-27030
18,025
Refer Note 2 below Notes: As per the Transfer Pricing study undertaken by the assessee, the Comparable Uncontrolled Price Method was determined to be the most appropriate method prescribed under Section 92C of the Income-tax Act, 1961. On the basis of the study, it was concluded that the prices of international transactions of the assessee were at arms length as provided under Section 92C of the Income-tax Act, 1961. Accordingly, it was considered reasonable to use the book values of international transactions as representative of arms length price of all such transactions.
Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management Representation Letter Filing requirements in other countries
ITAT contention
Deletion of AMP expenditure Deletion of AMP expenditure related adjustments made by related adjustments made by TPO as he acted beyond his TPO as he acted beyond his jurisdiction, without approval jurisdiction, without approval from CIT from CIT The role of the TPO is The role of the TPO is restricted to only that restricted to only that transaction, referred to him by transaction, referred to him by the AO (CBDT Inst. 33of 2003) the AO (CBDT Inst. of 2003) Plain reading of Sec. 92CA(1) Plain reading of Sec. 92CA(1) nowhere reveals that TPO can nowhere reveals that TPO can take any transaction suo moto take any transaction suo moto for verification and adjustment for verification and adjustment
TPO did not conclude that TPO did not conclude that AMP expenditure incurred is an AMP expenditure incurred is an international transaction international transaction
ITAT contention
Bright Line Test done by TPO Bright Line Test done by TPO by applying AMP/Sales as aa by applying AMP/Sales as base for benchmarking is not base for benchmarking is not 11of the 55methods prescribed of the methods prescribed under TPR in India under TPR in India
Proposed budget 2011 gives TPO the power to evaluate transaction not referred by AO
AO / CIT(A) contention
AO did not accept the AO did not accept the contention and levied the contention and levied the penalty under Section 271 BA penalty under Section 271 BA
ITAT contention
Assessee had obtained the Assessee had obtained the Form 3CEB before the due Form 3CEB before the due date of return filing date of return filing
CIT (A) upheld the penalty CIT (A) upheld the penalty levied by the AO levied by the AO
Section 273B provides that no Section 273B provides that no penalty under Section 271 BA penalty under Section 271 BA will be leviable ififthere is will be leviable there is reasonable case for failure to reasonable case for failure to comply comply Assessee was under genuine Assessee was under genuine belief that Annexures were not belief that Annexures were not to be filed with the return. to be filed with the return.
Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent development Revision of Form 3CEB Management Representation Letter Filing requirements in other countries
Prior to Merger
K Ltd, M Ltd and C Ltd are separate legal entities in India They have filed their Form 3CEB for April 2009 to March 2009 by September 2009 The group wants to merge K ltd and M Ltd into C Ltd and have a single entity in India The Scheme of Amalgamation is approved by the High Court in October 2009 w.e.f January 1, 2009.
Out of India
In India
K Ltd K Ltd
M Ltd M Ltd
C Ltd C Ltd
Post Merger
AE AE
Out of India
Form 3CEB filed by the Form 3CEB filed by the entities are revised entities are revised
No specific provisions in the Income tax Act for revision of Form 3CEB Guidance Note silent on this No legal precedent Revision of Form 3CEB transaction affects the income reported in the Return of Income Section 139 (5)
Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent Developments Revision of Form 3CEB Management Representation Letter Filing requirements in other countries
Legislative Framework in India Importance of Form 3CEB Form 3CEB Flow Form 3CEB Clauses Recent developments Revision of Form 3CEB Management Representation Letter Filing requirements in other countries
US
UK
None Specified
Italy
Germany France
None None
Vietnam
Form GCN-01/QLT to be filed Form to be filed within 90 days from year end 3A Identity of related party and transaction detail 3A-1 Existence of study to support ALP
Indonesia
Thailand
No disclosure
Thank you