Domestic Transfer Pricing
In 2013, the idea of domestic transfer pricing was established. To improve governance in inter-company transactions, DTP has been introduced.
What is Domestic Transfer Pricing?
Before, only international transactions were covered by the transfer pricing (TP) regulations. However, as of April 1, 2013, particular domestic transactions are now included in the scope of transfer pricing, making it applicable starting with the 2013–14 assessment year (A.Y. ).
Legal Definition of Domestic Transfer Pricing?
According to Section 92BA, the following transactions are considered “specified domestic transactions” for purposes of the assessee and are subject to the TP rule.
Any costs associated with a payment made or to be paid to a person mentioned in section 40A (2) that have been or will be incurred (b).
monetary exchanges covered under section 80A.
any exchange of products or delivery of services as described in section 80-IA, paragraph 8.
Any business deal mentioned in section 80-IA, subsection 8, between the assessee and a third party
Any transactions that have been described in Chapter VI-A or Section 10AA, or for anyone to whom the terms of Section 80 IA, Subsections 8 and 10 apply.
And if the assessee’s total of these transactions throughout the preceding year reaches 20 crores
any more business dealings
Only if the combined turnover of the aforementioned transactions reaches Rs. 20 crore will the aforementioned provisions be applicable (w.e.f. 1st April 2017 i.e. A.Y. 2017-18 onwards) In other words, even though the value of the transactions under any one category may be low, the taxpayer will still need to comply with the TP requirements if the threshold limit has been surpassed. As a result, there is no threshold for any of the definition’s heads.
Applicability of Domestic Transfer Pricing?
Transfer pricing cannot be used by tax payers to lower their tax obligations for specific domestic transactions.
The 20 crore monetary threshold limit will be determined based on the total of all payments and receipts covered by these regulations.
the meaning of Expenses that are not permitted to be paid for businesses with common beneficial ownership are included as a related party.
Advance Pricing Agreement clauses are expressly excluded from transfer pricing, which primarily applies to certain domestic and foreign transactions.
Concept of Arm’s Length Price(ALP)
Specified Domestic Transactions have also been included in the scope of the ALP concept. The price recommended to be imposed in a transaction between the assessed and any other unconnected person in an uncontrollable circumstance is referred to as ALP.
Methods of Computing ALP
comparable unregulated price approach
Resale price approach
Cost plus approach
Method of transactional net margin
Any other approach that the Board may notify
Documentation requirements for Domestic Transfer Pricing transactions
Our Approach and support
1. Identify the transactions:
We help you locate agreements that fall under the purview of specific domestic transactions. We assist in mapping transactions and recording current pricing practises.
2. Assessment of Impact:
Review of the contracts and papers based on what the parties are charging and paying for is something we do.
Analyze the impact in light of the group’s current pricing policy to determine if the transactions adhere to the principle of arm’s length pricing.
Technical analysis of the agreement to determine whether or if the provisions for Specified Domestic Transactions are relevant and establishing ALP for the same
3. Understand the implication
Do a high-level functional analysis of the discovered Specified domestic transactions.
Whenever necessary, carry out high-level benchmarking analyses.
Assistance on the SDT compliance/documentation
Key Service provided by us
The following documentation and compliance standards will be met with your assistance from our team of experts:
assist in identifying precisely domestic transactions originating from connected parties and linked domestic transactions that fall under the ambit of domestic TP.
Assistance with performing functional and benchmark analyses
assistance with creating economically responsible and commercially viable TP policies
Help with timely documentation preparation in accordance with the Indian TP Regulation