SP Lodha Associates

Domestic Transfer Pricing – Need to Know

admin — Thu, 04 Feb 2016 06:01:28 +0000

Applicability: From Assessment year 2013-14. The provision of transfer pricing have been extended to cover “specified domestic transactions”. Due Date of filing return of Income is 30th November 2013.
Coverage: Any Assessee having Specified Domestic Transaction need to comply with the requirements. Specified Domestic Transaction is defined as:
Any of the following transactions not being international transaction, namely:

any expenditure in respect of which payment has been made or is to be made to a person referred to in section 40A(2)(b);
any transaction referred to in section 80A;
any transfer of goods or services referred to section 80IA(8);
any business transacted between the assessee and other person as referred to section 80-IA (10);
any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of section 80-IA(8) or 80IA(10) are applicable; or
any other transaction as may be prescribed,

AND
where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of Rs. 5 crore.

Illustrative list of Transactions included:

Expenditure on buying goods
Expenditure on procurement of services
Expenditure on interest payments
Expenditure on salary, training services, marketing expenses
Expenditure on purchase of tangible and intangible property
Director’s remuneration, commission, sitting fees
Group charges
Reimbursement expenditure
Guarantee fee expenditure

Compliance requirement: To maintain prescribed transfer pricing documentation and file report from an accountant in the prescribed format, as applicable for international transactions amongst associated enterprises.

The above would need to be in place by due date of filing tax return, and would in due course, be assessed through the regular assessment procedure by dedicated transfer pricing officers.

Failure to comply:

Penalty of 2 per cent of transaction value for failure to report the transaction or for failure to maintain or furnish documentation.
Thus, even if one forgets to disclose a transaction of INR 5 crore, which is the minimum threshold for reporting, the penalty is INR 10 lakh.
This penalty is in addition to penalty of INR 1 lakh prescribed u/s 271BA for non- furnishing of Auditors report u/s 92E.
Adjustments will attract penalties of 100 to 300 percent of the additional tax payable.

Calculation of Arm Length Price (ALP)
a) Comparable uncontrolled price method;
b) Resale Price Method;
c) Cost Plus Method;
d) Profit Split Method;
e) Transactional Net margin method;
f) Such other method as prescribed by the board

Transfer Pricing Consultant’s Role:
– Facilitate building of a framework that helps identify and capture domestic related party transactions.
– Develop/ document a pricing policy for all types of related party transactions, with guidelines on “if this is the transaction…..then how to price”, along with case examples capturing different business scenarios.
– Collating prescribed documentation required to support/ substantiates the transfer price.
– Harmonize pricing approach for domestic as well as cross-border transactions.
– Undertake benchmarking analysis.
– Assist in issuance of Accountant’s Report.
– Develop defense files for transfer pricing assessment

How to Invest in World’s next bull market

admin — Wed, 03 Feb 2016 08:28:08 +0000

Election result of India, the Biggest democracy in the World, gave clear mandate to the“Development” agenda of Mr. Narendra Modi who has successfully led Gujarat as a Chief Minister for 12+ years and put the state in the limelight with his vision, planning, transparent policies and ability to attract foreign investments.

This gave great hopes to the business community of pro-business, pro-investment climate with clear, no-nonsense political will; and to the investors an opportunity to participate in the India’s success story of next decade.

While there has been a need of investment for India’s development, now, there is a political will for development as well as companies and businesses are ready to invest in India. With need, will and readiness for development, India will grow for sure. And, for a foreign investor, two things are bound to happen:

Watching / reading about the India’s growth story in the news OR
Becoming a part of India’s growth story and earning double digit returns.

If you want to explore investing in India, it is very important to understand the regulations, requirements and procedures related to foreign investments in India.

Regulatory Overview:

In India, Foreign Exchange Management Act (FEMA) governs foreign investments and allows investment in India by non-residents as Foreign Direct Investment (FDI) or under the Portfolio Investment Scheme (PIS) of Reserve Bank of India (RBI). FDI by multinational companies making business investments is different from portfolio investment in Indian securities (stocks, bonds) by investors. The requirements under the PIS are different for investments by Non-Resident Indians (NRIs) and Foreign Portfolio Investors (FPI).

A. Foreign Direct Investment (FDI)
An individual or a company of foreign country can invest in India through FDI, either by setting up a new company, buying a company or by expanding operations of an existing business.

An Indian company may receive FDI under Automatic or Government (Approval) Route. FDI in all activities/sectors as specified in the consolidated FDI Policy is allowed under Automatic Route, whereas FDI in any other activities would require prior approval of the Government.The Indian company receiving FDI is required to comply with provisions of the FDI policy and report the FDI to the RBI.

B. Investment under PIS:
NRIs and FPIs are allowed to invest in shares or convertible debentures of listed Indian companies in recognized stock exchanges on repatriation and non-repatriation basis under PIS.

A separate PIS account to be opened which will be linked to the respective Bank account e.g. for investment on repatriable basis, a Non-Resident External (NRE) bank account is linked to the NRE -PIS account. The investment is made on delivery basis only; short selling or intra-day trading is not allowed and the activity is reported to RBI on a daily basis.

B(i) Non-Resident Indian (NRI):
Investment by NRI is straight forward and is easy. There is no registration requirements, categories or fees. NRI would contact the bank to open a bank and PIS account and then would invest or trade on delivery basis through a broker. The purchase or sale of investments is reflected in the Demat (shares in electronic form) account with broker.

B(ii) Foreign Portfolio Investor (FPI):
A new category of Investors – FPI was introduced to encourage and simplify Foreign Portfolio Investment from January 2014. FPI is person who is not a resident in India nor a NRI but a resident of a country that is signatory to MOU with IOSCO/SEBI, member of Bank for International Settlement, and no warning issued from FATF. FPI should also be legally permitted to invest in securities outside its country of incorporation/ residence and is a fit and proper person as prescribed.

There are three categories of FPIs: Category I FPIs include foreign government and government related investors; Category II FPIs include mutual/pension/university funds, banks, insurance or asset management companies, portfolio/investment managers or advisors, university endowments, etc.; Category III FPIs include all others FPIs such asindividuals, family offices, corporate bodies, trusts, foundations, endowments, etc.

Registration of FPI is undertaken and granted by Designated Depository Participants (DDPs) on behalf of SEBI on payment of fees (Category I: no fee; Category II: USD 300; Category III: USD 3000 for a block of three years). Once registered, the investor would be called ‘Registered Foreign Portfolio Investor (RFPI)’, and will be authorized to acquire and sell shares and securities under PIS and take benefit of India’s growth story.

NRO to NRE transfer Update: 15CB/15CA required for Both “Taxable” and “Non Taxable” Transfers

admin — Wed, 03 Feb 2016 08:16:33 +0000

From June 1, 2015, any person making a payment to a non-resident, including an NRI transferring funds from NRO to NRE account would be required to obtain a certificate from a Chartered Accountant in form 15CB and file form 15CA to the income tax department.

On May 14, 2015, the President of India gave assent to the Finance Bill, 2015 as passed by the both Houses of Parliament, which substituted section 195(6) with effect from June 1, 2015 as under:

“The person responsible for paying to a non-resident (not being a company) or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed.”

This amendment brings clarity to the ongoing debate about whether 15CA/15CB is required for NRO to NRE transfer or for remittance outside of India of any non-taxable funds like long term capital gain on equity shares, PPF account, inheritance, etc.

While the CBDT notification 67/2013 required Form 15CA/15CB only for the taxable transfers, the bank personnel were asking for the Forms even for such non-taxable transfers creating a lot of confusion among NRI fraternity. This amendment made the procedural requirement very clear.

Please note:

The revised rules are applicable from June 1, 2015, so you still have 15 days to transfer non-taxable funds without Form 15CB/15CA. Of course, convincing the bank won’t be easy.
For the nature of the payments included in the “Specified List”, Form 15CB/15CA may not be required.
For payment that does not exceed Rs. 50,000 or aggregate of payment does not exceed Rs. 250,000 in a financial year, Only Form 15CA Part A to be furnished.
For any payment other than #3 above, updated CA Certificate in Form 15CB to be obtained and Part B of the Form 15CA to be furnished to the Income Tax department.