Method and Benefits of Transfer Pricing Service in India

Any cross-border transaction between two related parties are eligible to transfer pricing provisions in India. The Indian Govt. announced Transfer Pricing Regulation vide Finance Act, 2001. The Transfer Pricing service provide for selecting the most suitable method among the various transfer pricing methods to validate the arm’s length nature of the transactions.

Methods of Conducting Transfer Pricing in India

• The CUP Method:  This means comparing the price of service/property transacted in a static transaction vs. comparing the price of service/property transacted in a volatile transaction and comparing them accordingly.

• The Resale Price Method: Gross Margin in Resale value in a static transaction vs. Gross Margin in Resale in a volatile transaction and compare them accordingly.

• The Cost-Plus Method: The mark-up on costs that the manufacturer/service provider earns in a static transaction vs. The mark-up on costs that the manufacturer/service provider earns in a volatile transaction and compare them accordingly.

• The Transactional Net Margin Method: The transactional net margin method takes in the ratio of net profit with an appropriate base (e.g. costs, sales, assets), that a taxpayer realizes from a static transaction (or from transactions that are appropriate to aggregate) with the net profit earned in a volatile transaction and compare them accordingly.

• The Transactional Profit Split Method: The transactional profit split method takes in the combined profits which are to be split between the Associated Businesses from the controlled transactions in which the Associated Businesses are engaged in.

Benefits/Advantages of transfer pricing 

• Cost Duty Reduction: Business Entities reduce cost duties by paying minimum transfer prices by shipping goods to countries where tariffs are high. Thereby reducing the duty slabs on which duties must be paid.                          
• Various Tax Reductions: Business Entities use various methods of Transfer Pricing service to reduce income taxes in countries with higher taxes by charging higher prices on goods that can be transferred to countries with lower tax rates. 

At ASC, we understand the complication of the transfer pricing service in India and abroad with our rich experience providing end-to-end solutions to our clients which include both Indian and foreign enterprises.