Ø
Applicable
from FY 2012-13.
Ø
Transaction
value exceeds Rs. 5 Crore.
Ø SDT
include payments to related parties, inter-unit transfer of goods or services
of profit linked tax holiday-eligible
units, transactions of profit-linked tax holiday-eligible units with other parties and any other transaction
that may be notified by the Central Board of
Direct Taxes.
Ø
An
analysis with different section has been given below.
|
Section
|
Tax Payer Covered
|
Applicability of TP provisions on SDT
aggregating a value of more than
INR50 million
|
|
40A(2)
|
Applicable to taxpayers making payment/
incurring expenditure and not to recipients of such
income
|
The reasonableness of payments is to
be computed with regard to the arm’s
length price
|
|
80A(6)
|
Enterprises claiming deductions from total
income under chapter VI-A
|
The goods and services of an eligible
business are to be transferred to any
other business carried on by the same
taxpayer, and vice versa, to meet the arm’s
length test.
|
|
80-IA
Sub Section (8)
and (10)
|
Infrastructure developers
• Telecommunications service providers
• Developers of industrial parks
• Producers or distributors of power
An enterprise with an eligible business and
close connection with
any other person
|
The goods and services of an eligible
business transferred to any other business
carried on by the same taxpayer, and vice
versa, are to meet the arm’s length test.
With reference to Sub section (10), a
business transacted between a taxpayer
carrying on an eligible business with a close
connection, which results in more than
ordinary profits to the business, is to meet
the arm’s length test
|
|
80-IAB
|
Developers
of SEZs
Small scale industry engaged in
operating Cold storage plant
• Industrial undertaking in Industrially
backward state as mentioned in VIII
Schedule (ex: Jammu and Kashmir )
• ► Multiplex theaters and convention
centers
• ► Company carrying on scientific
research and development
• ► Eligible housing projects
• ► Eligible hospitals
|
The provisions of section 80IA Sub section
(8) and (10) are to apply to an undertaking
referred to in
these sections.
|
|
80-IC/80-IE
|
Persons with units in specified states /northeastern
states
claiming deduction
|
|
|
80-ID
|
Hotels located in districts with World Heritage
Sites
|
|
|
10AA
|
Persons
with income from SEZ units
|
Ø
Challenges
§ Determining
the applicability of TP on SDT to a company, undertaking or unit, considering
economic and legal criteria
§ Identification
of domestic transactions covered under SDT provisions of TP regulations
§ Designing of tax-efficient solutions
and mitigating risk of tax penalties
§ Compliance with new TP provisions
applicable to SDT by 30 November 2013
§ Maintenance of documentation including,
but not limited to, group profiles, nature of transacting units, related parties, transactions terms,
agreements, inter unit transfer policies and financials
Ø Compliance
Requirements will be same for Specified Domestic Transactions as they applied
on International Transfer Pricing Transactions like Chartered Accountant
Report(Transfer Pricing Certification), TP
Documentations etc. But with amendments in Section 40A(2)(a) and 80A(6),
taxpayers need to evaluate, identify and list out the transactions which
qualify as SDTs and should included in transfer pricing documentation and
accountant’s report. Transfer Pricing Certification in Form No. 3CEB is
required to be furnished by a chartered accountant including value of SDT, list
of related parties and method used to determine ALP. All the detailed
documentation should be maintained and submitted by 30th November of
the relevant assessment year. Non-compliance or improper compliance will lead
to heavy penalties. Like,
Ø Failure to
maintain documents; or Failure to report a transaction in the accountant’s
report; or Maintaining or furnishing incorrect information or documents – Penalty
of 2% of the value of transaction
• Failure to
furnish documents – Penalty of 2%of the value of transaction
• Failure to
furnish Form 3CEB by the due date – Penalty of 100,000 INR
• In case of
a transfer pricing adjustment, in absence of good faith and due diligence by
the taxpayer in applying the provisions and maintaining adequate documentation
– Penalty of 100% – 300% of tax on the adjusted amount
Ø Advance Pricing Agreements NOT
applicable to specified domestic transactions
Ø
Impact
of Domestic Transfer Pricing
Ø
Most
likely Transaction under scanner of the TPO would be
} Interest free Loans to group
Companies
} Granting of Corporate
Guarantees / Performance Guarantee by Parent Company to its Subsidiaries
} Intra-group purchase/sell/
service transactions
} Payment made to key
personnel of the assesse e.g. Directors/CEO/CFO
} Payment made to key
personnel of the group Companies
} Payment made to relatives of
key personnel of the assesse/ group companies
Ø
Click the link below to refer the guidance
note issued by ICAI in this respect.
Ø
Safe
harbor rules not cover SDT.
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