Transfer Pricing Certification
Accountant report and documentation for international and specified domestic transactions between related parties.
Where an Indian company transacts with an associated enterprise abroad, the price charged must be an arm’s length price — the price that would have been agreed between unrelated parties. The transfer pricing provisions exist to stop profit being shifted out of India through the pricing of intra-group transactions.
Compliance has two parts: maintaining documentation that justifies the price, and filing an accountant’s report in Form 3CEB. The report is due before the tax return, and its deadline is earlier than the ordinary filing date.
What this costs
What is covered
- Sale or purchase of goods with an associated enterprise abroad
- Provision or receipt of services, including management and technical services
- Payment or receipt of royalty and licence fees
- Intra-group loans, guarantees and interest
- Cost allocation and cost sharing arrangements
- Transfer of intangibles
- Specified domestic transactions, above the prescribed threshold
How arm’s length price is established
The Act prescribes methods, and the most appropriate one must be selected on the facts rather than on convenience. Comparable uncontrolled price, resale price, cost plus, profit split and transactional net margin are the recognised methods.
The transactional net margin method is used most often in practice because comparable data is easier to obtain, but selecting it without demonstrating why the other methods are less appropriate is a weakness that assessments do exercise.
Documentation is not optional
Where the value of international transactions exceeds the prescribed threshold, contemporaneous documentation must be maintained — an entity overview, a functional analysis of what each party actually does, the economic analysis supporting the method chosen, and the comparables relied on.
The documentation must be in place by the due date, not assembled afterwards when a notice arrives. A separate penalty applies for failure to maintain it, independent of any adjustment to income.
The penalties are severe
- Penalty for failure to maintain documentation, as a percentage of the transaction value
- Penalty for failure to furnish Form 3CEB
- Penalty on any adjustment to income, where the price is found not to be at arm’s length
- Interest on the additional tax arising from an adjustment
How we handle it
- 1 Mapping the transactions Every transaction with an associated enterprise is identified, since one missed category is enough to make the report incomplete.
- 2 Functional analysis We establish what each party actually does, owns and risks, which is what determines the appropriate method.
- 3 Selecting the method The most appropriate method is chosen and the reasons for rejecting the others documented.
- 4 Benchmarking A comparability study is prepared using company databases to establish the arm’s length range.
- 5 Documentation The contemporaneous documentation set is compiled and placed on record by the due date.
- 6 Filing Form 3CEB The accountant’s report is filed before its deadline, ahead of the income tax return.
Frequently asked questions
When do transfer pricing provisions apply?
Where an enterprise enters into an international transaction with an associated enterprise, or a specified domestic transaction above the prescribed threshold. There is no minimum value for international transactions.
What is an associated enterprise?
Broadly, an enterprise that participates in the management, control or capital of the other, or where both are under common control. The Act sets out specific tests including shareholding and dependency thresholds.
Is Form 3CEB required even for a small transaction?
Yes. Unlike documentation, which is triggered above a value threshold, Form 3CEB is required wherever an international transaction with an associated enterprise exists.
What if we simply charge cost with no markup?
That is not automatically arm’s length. A service provider bearing risk would normally earn a return, and a zero-margin arrangement is frequently adjusted in assessment unless the functional analysis genuinely supports it.
Can we fix the price in advance with the department?
Yes, through an advance pricing agreement. It takes time and cost to negotiate but gives certainty for a period of years, which suits groups with substantial recurring transactions.
What is not included. Government fees, statutory charges, stamp duty, court and registry fees, digital signature costs and any third-party professional charges are separate and payable at actuals. GST applies on professional fees where indicated. Prices shown are indicative and may change without notice; we confirm the total in writing before any work begins — see our terms on pricing.
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