Please Help: Transfer pricing
Posted Date : 26-Mar-2014 , 03:23:43 pm | Posted By: CA KIRAN LONDHE
Category :
Income Tax | Answers :
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Comments :
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XYZ LLC is US based LLC . Mr. A is founder of it . Mr. A is NRI , person of Indian origin .
At present XYZ LLC is entering into contracts with Software engineers in India for performing software development in India on its behalf for its foreign clients . Liability to bear Indian taxes is on Engineers .
Entire risk relating to software development is handled by XYZ LLC and all clients are foreign clients.
Now they have established private limited company named “ XYZ India Private Limited “ with motto of instead of entering into contract agreement with engineers , keeping them on payroll of XYZ India Private limited “. i.e. outsourcing to Indian company .
Shareholding pattern of XYZ India Private Limited .
Mr. A – 99% in Indian currency – NRI , person of Indian origin
Mr. B- 1% Indian resident .
MR. A & Mr. B are directors.
Nature of transaction:-
XYZ India private limited will raise invoice on XYZ LLC covering reimbursement of expenses like Salary of engineers, rent , and other business related expenses plus some mark up.
Want to know :-
1. Treatment for above transaction under Service Tax – Would it be treated as export and no service tax ?
2. Are XYZ LLC and XYZ India Private Limited associated enterprises ? What would be its effect on service tax liability?
3. Would it be covered under Transfer Pricing ? and How much mark would be sufficient ? what documents would be required ?
4. Cost benefit analysis - Service tax and Income tax point of view . How can the above mentioned transaction entered to minimize taxes ?
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| Comments |
| Posted By : |
06-Apr-2014, 02:12:38 |
| Hi,
1. If consideration i.e. amount of invoice raised by XYZ India Pvt Ltd. is received in convertible foreign exchange, then it would be export of service and consequently, no service tax will be levied.
2. Prima facie, it appears, from the description of case, that XYZ LLC and XYZ Pvt Ltd are Associated Enterprise (AE) but since you have not elaborated on the relationship in the lines as are required to test the AE relationship like, relationship between Mr A and XYZ LLC (Director/Shareholder etc.),nothing can be said with certainty. Well. you may refer section 92A of ITA for reference.
3. Effect of being AE under service tax is that the point of taxation (POT) under reverse charge mechanism is date of debit in books or date of payment whichever is earlier. But since, the transaction you have mentioned is a normal charge and not reverse charge, there would be no significance in your case.
4. If they be AE, definitely, they are governed by TP provisions.
5. Regarding markup, it is a professional judgement which can only be made with full facts and case, so nothing can be said.
6. Documents which are required to be maintained, you may refer section 92D read with Rule 10D.
7. Regarding cost benefit analysis, sorry I do not understand what do you mean by that, particularly from service tax and income tax view point. There can not be a trade off between the two.
8. As regards minimizing the tax incidence, again that would depend on full facts which you may not share due to confidentiality. In case of doubt, you may take professional help of a practicing CA. |
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