​Budget introduces secondary adjustments in transfer pricing

NEW DELHI: Seeking to align transfer pricing norms with OCED guidelines, Finance Minister Arun Jaitley today proposed introduction of a new section in the I-T Act to allow secondary adjustments in books of accounts to reflect actual allocation of profits between a company and its arm.

Secondary adjustments may take the form of "constructive dividends, constructive equity contributions, or constructive loans", said the memorandum to the Finance Bill 2017.

"It is also proposed to provide that such secondary adjustment shall not be carried out if the amount of primary adjustment made in the case of an assessee in any previous year does not exceed Rs 1 crore and the primary adjustment is made in respect of an assessment year commencing on or before April 1, 2016," the memorandum stated.

This amendment will take effect from assessment year 2018-19.

The minister has proposed to insert a new Section 92CE in the Income Tax Act to give effect to the secondary adjustment norms, which is based on OECD's transfer pricing guidelines for multinational enterprises and tax administrations.

It is also provided that where the excess money available with the associated enterprise on primary adjustment is not repatriated to India within the prescribed time, it shall be deemed to be an advance made by the assessee to such associated enterprise.

The interest on such advance shall be computed as the income of the assessee, it said.

Transfer pricing refers to pricing of goods and services within an organisation like a parent company to its subsidiary, which determines tax liability of an Indian subsidiary of a foreign company. There is often a dispute between foreign companies and Indian tax authorities in calculating tax liability.