By Gaurav Jain, Chartered Accountant & Priya Bhutani
India’s Central Board of Direct Taxes, in notification 83/2020, has retained the prevailing transfer pricing tolerance range of 1% for wholesale trading and 3% for other international and domestic intercompany transactions.
These transfer pricing ranges, announced on 19 October, will apply to all transactions undertaken during the financial year ending 31 March 2020.
According to the announcement, to qualify as “wholesale trading,” the purchase cost of finished goods must be 80 percent or more of the total cost of trading activities. In addition, the average monthly closing inventory of such goods must be 10 percent or less of sales pertaining to such trading activities.
The current notification, similar to earlier years, doesn’t provide a specific explanation or clarification regarding why wholesale traders have a different tolerance range.
Further, it appears that the global pandemic had only a marginal effect in FY 2019–20, so the narrow range of 1% was maintained. However, it is expected that the government may take cognizance of the effects and business realities of the global pandemic and may alter the tolerance range of the next accounting year.
The government has provided many relief measures, extending the corporate tax compliance timelines and offering tax relief measures to ease out the strain of the current global pandemic on the taxpayers and their businesses.
However, similar relief measures to enhance the coverage of tolerance range and other transfer pricing safe harbours would have been helpful for MNEs that are required to undertake Indian transfer pricing compliance.
Having said that, the tax community optimistically maintains an expectation that the government will provide broader and better defined transfer pricing safe harbour rules and an arm’s length tolerance range that takes into consideration the effects of the current times.
Tax practitioners also seek detailed guidance on the computation of profits and on what accounts will be considered in establishing the transfer price under each classification of services covered under the tolerance range and safe harbour rules. Such clarifications would be a saving grace for the taxpayer and may help reduce litigation.
Gaurav Jain
Gaurav is a Chartered Accountant having more than 15 years of post-qualification experience in the field of transfer pricing, also having worked on a wide range of inbound and outbound investment structuring.
He has extensive experience in the sectors of Natural resources, manufacturing, real estate, IT/ITES and auto ancillary. His areas of expertise include documentation, including CbCR, Master File and Local File, TP Planning and restructuring and litigation for a number of renowned multinational and Indian companies.
Gaurav has also represented various complex transfer pricing matters before the Indian tax authorities, also assisting in dispute resolution through Advance Pricing Agreements. He has also twice served as member of Committee on International Taxation, Institute of Chartered Accountants of India.
Latest posts by Gaurav Jain (see all)
- India extends applicability of transfer pricing safe harbour rules for another year - October 12, 2021
- India reduces transfer pricing filing burdens, increases reporting thresholds - April 13, 2021
- India retains transfer pricing tolerance range for 2019–20 - October 30, 2020
- Transfer pricing issues arising from the COVID-19 pandemic - April 14, 2020
- India specifies transfer pricing arm’s length tolerance range - September 17, 2019
Walker Chandiok & Associates
L 41, Connaught Circus, New Delhi
110 001, India
+91 11 4278 7070
https://www.grantthornton.in/
Priya Mani Bhutani
Priya has more than 9 years of experience in the field of transfer pricing. She holds a Master’s degree in Economics and Bachelors in Economics and Management.
She has experience in transfer pricing documentation and compliance services, including CbCR and Master File and has also assisted clients in transfer pricing assessments and planning assignments. She has serviced conglomerates from the IT/ ITeS, Auto, Natural resources, real estate and Industrial goods manufacturing and trading sectors.
Priya has represented cases before the Transfer Pricing Officers and has assisted in representation before the DRP, CIT(A) and ITAT. Her experience also includes assisting clients with litigation avoidance mechanisms such as Advance Pricing Agreement and Safe Habour.
Latest posts by Priya Mani Bhutani (see all)
- India extends applicability of transfer pricing safe harbour rules for another year - October 12, 2021
- India reduces transfer pricing filing burdens, increases reporting thresholds - April 13, 2021
- India retains transfer pricing tolerance range for 2019–20 - October 30, 2020
- Transfer pricing issues arising from the COVID-19 pandemic - April 14, 2020
- India specifies transfer pricing arm’s length tolerance range - September 17, 2019
Walker Chandiok & Associates
L 41, Connaught Circus, New Delhi
110 001, India
+91 11 4278 7070
https://www.grantthornton.in/
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