Far Reaching Amendments to Transfer Pricing Provisions


The following amendments are proposed to the Transfer Pricing provisions, which would have far reaching implications, not only on cross-border transactions between Associated Enterprises, but also on large value transactions between domestic related parties:

Effective from 1st July 2012, transactions between domestic related parties (as defined in section 40A(2)(b)) exceeding Rs. 5 crores in aggregate in respect of an assesses, to come within transfer pricing net; which would include maintaining of prescribed documents and information and separate transfer pricing assessment by Transfer Pricing Officers. So be prepared on an additional area of huge litigation in respect of your domestic related party pricing, since this area is very subjective and has recently been the cash-cow for government in cross-border transactions.

Definition of International transactions’ to be expanded so as to specifically include therein business restructuring, financing and guarantee arrangements etc., retrospectively from April 2002.

Extensive definition of intangible property’ to include all types of rights, licenses etc.    
           Within its fold, again retrospectively from April 2002.

Section 92C(2) to be amended retrospectively for cases pending before Assessing    
Officer as on 1st October 2009, so as to undo judicial decisions favoring the assessees with respect to allowing +-5% adjustment to mean comparable price, for determining arm‘s length price; however, cases completed before 1st October 2009 cannot be reopened.

Arm‘s length range to be restricted to 3% of the actual price undertaken, with effect  
from 1 April 2013.

Retrospective amendment effective from 1st June 2002 to empower TPO to examine
International transactions not reported in Form 3CEB, which comes to his notice in the course of transfer pricing proceedings; however, cases completed before 1stJuly 2012 not to be reopened.

Extensive provisions for Advance Pricing Agreements to be introduced with effect
from 1st July 2012, but these would be person-based agreement to be entered by the assesses and the CBDT, and would be applicable only in such assessee‘s case, for agreed transactions.

Non-furnishing of prescribed report in Form 3CEB to be deemed case of income
having escaped tax for initiating income-escaping assessments (reassessments).
        
Penalty of 2% of transaction value in cases where certain transaction/s not reported
in prescribed Form 3CEB and maintenance/furnishing of incorrect information or document as prescribed.

 Penalty for non-filing of Form 3CEB to be increased from Rs. 1 Lac to 2% of the value of international transactions.