Transfer pricing extended to some domestic dealings

By Ajit Tolani and Rahul Charkha, Economic Laws Practice
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The Union Budget 2012-13 saw major proposals to plug the adverse practices used by taxpayers to reduce their tax burden. Among the various general and specific anti-abuse proposals, a conspicuous proposition included extending the realm of transfer pricing to “specified domestic transactions”. This is a consequence of the Supreme Court’s direction in the case of Commissioner of Income Tax v GlaxoSmithKline Asia(P) Ltd.

Ajit Tolani Partner Economic Laws Practice
Ajit Tolani
Partner
Economic Laws
Practice

Thus, it is proposed that from 2012-13, taxpayers with specified domestic transactions exceeding ₹50 million (US$1 million) will have to ensure that their intra-group transactions are carried out at arm’s length. While such anti-abusive measures already exist in the current law, the proposal has mammoth importance owing to a paradigm shift in the basis of measuring rationale of domestic related-party transactions, from generic fair market value to a more specific and methodical arm’s length price.

According to the proposal, transfer pricing regulations would apply to: expenditure paid or payable to a specified related party under the Income Tax Act, 1961, section 40A(2)(b); taxpayers claiming undertaking-specific deduction (section 80-IA, IB, IC, etc.); and units operating in special economic zones and claiming deduction under section 10AA.

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Economic Laws Practice is a full-service law firm with headquarters in Mumbai and offices in New Delhi, Pune and Ahmedabad. Ajit Tolani is an associate partner and Rahul Charkha is an associate at the firm.

ELP

Economic Laws Practice

1502 A Wing, Dalamal Towers

Free Press Journal Road

Nariman Point, Mumbai 400021

India

Tel: +91 22 6636 7000

Fax: +91 22 6636 7172

Email: ajittolani@elp-in.com

rahulcharkha@elp-in.com

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