MoF issues norms for transfer price assessment

NEW DELHI: The Finance Ministry has issued administrative guidelines on transfer price assessment, to kickstart scrutiny of returns filed for assessment year 2002-03. These include a Rs 5-crore floor level for picking international transactions for transfer price scrutiny. Every case that's picked up for scrutiny will be referred to the transfer pricing officer (TPO). If there are more than one transactions with an associated enterprise or transactions with more than one associated enterprise, the aggregate value of which exceeds Rs 5 crore, these should be referred to the TPO. The threshold will be reviewed later, depending on workload. The CBDT has set June 30, '03, as deadline for selecting cases to be scrutinsed and referred to the TPO on pending returns filed for assessment year '02-03. Though the first set of tax returns based on the transfer-pricing regulation were filed in October '02, transfer pricing cells comprising TPOs were notified this year. Transfer price is described as the price charged by one MNC to an associated enterprise (AE) for an international transaction relating to the supply of goods or services. The law mandates that any income accruing from an international transaction between associated enterprises should be calculated with regard to the arm's length price. The intention is to prevent shifting out of profits by manipulating prices charged or paid on a transaction. With the TPR still at a nascent stage, the CBDT thinks it would be appropriate only if a small number of cases are taken up for scrutiny. The recommendation to formulate guidelines on TPR was made by the working group on non-resident taxation, chaired by Vijay Mathur, director general, International Taxation. The guidelines, which are in the nature of internal instructions cover issues such as reference to the TPO, the role of TPO, role of the assessing officer (AO) after receipt of the arms' length price and maintenance of data base. To make a reference to the TPO, the AO has to first satisfy himself that the taxpayer has entered into an international transaction with an associated enterprise. The primary details of such international transactions are normally available in the accountants' report furnished by the assessee. The CBDT has made it explicit that the AO should not embark on scrutinising the correctness or otherwise of the price of the international transaction at this stage. The transfer price has to be determined by the TPO by any one of the methods stipulated under law and by applying the most appropriate method. The TPO, after taking into account all the relevant facts and data available to him, will determine the arms' length price. The order passed by the TPO should contain details of the data used, reasons for arriving at a certain price and the application of the method. All these will be subject to judicial scrutiny. AO's role would be to compute the total income of the taxpayer having regard to the arms' length price determined by the TPO. It is also mandatory to give a formal opportunity to the tax payer before making an adjustment of the total income, the guidelines state.

MoF issues norms for transfer price assessment

The Finance Ministry has issued administrative guidelines on transfer price assessment, to kickstart scrutiny of returns filed for assessment year 2002-03.

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