Tryst with Transfer Pricing

Hello everyone

Hope you all are Leading a focused life with clear written goals. They are so very important in bringing clarity in what you are doing and what we plan to do. I just thought of penning my thoughts down as I am at such an important juncture of my life wherein I have to take some very important decisions which would mark a new beginning and Pave a way for my future. Seven years in Mumbai have come to an end. 

This is my second year in transfer pricing as a transfer pricing officer in Mumbai. I have thoroughly enjoyed my tenure the first year has gone by and the second year has begun with some new experiments some new learning some new thoughts. Transfer pricing as a subject is quite technical but after having experienced it and practised it for one year I realised the fact that it is more of a common sense. Nevertheless there is no substitute for a thorough understanding of the subject as they say that knowledge is power and the knowledge of the subject brings a lot of power in the forms of confidence greater understanding and analytical bent of mind. 

Transfer pricing basically pertains to determination of arms length price of the transactions between the related parties. Herein, we try to compare the transactions between two related parties with the transactions between the AE and non-AE And then try to determine whether the price charged by the assessee from the AE is at arm’s-length or not. Then we have certain methods prescribed in the income tax act and we have the comparability analysis the statue makes it very clear As to which method is to be applied when. The income tax rules becomes very significant here as a detailed analysis of the methods prescribed are delineated along with the use of multiple year data and examples thereof. 

The transfer pricing was introduced in India by the Finance act 2001 and since then we are almost about to come to an end of the second decade. The subject has evolved and so have the rules. I have met so many chartered accountants during my one-year tenure in this field and I have heard them saying that transfer pricing is of no use because it is based on estimation. But my dear friends have forgotten that with the rise of globalisation the companies are having more number of international transactions between them there are so many multinational corporations coming up and they have their own subsidiaries and related parties set up in different countries for ease of business. Here comes the role of transfer pricing to investigate whether there is any evasion of tax or shifting of profits from High tax jurisdiction to low tax jurisdiction on account of related party transactions. In view of this how can the role of transfer pricing become insignificant in the new world order. 

I am open to queries on the fundamentals of transfer pricing and its usage. 

Cheers!