Rule on secondary adjustment notified

The Central Board of Direct Taxes on 15 June notified rule 10CB, to operationalize the provisions of secondary adjustment under section 92CE, which was inserted in the Income Tax Act by the Finance Act, 2017. Secondary adjustment ensures consistency between the arm’s length price (ALP) determined by primary adjustment and the actual profits received by the taxpayer. If the determination of ALP by way of primary adjustment leads to increase in taxable profits, the secondary adjustment seeks to ensure that the adjusted amount is repatriated to the taxpayer, and that such repatriation is subject to appropriate taxation. The mechanics of secondary adjustment are such that if primary adjustment leads to an increase in taxable profits, and the excess profits are not repatriated within the prescribed time, these will be deemed to be an advance on which interest shall accrue until they are repatriated to the taxpayer by its associated enterprise.