Transfer Pricing: Complete Guide for Businesses
What is Transfer Pricing?#
Transfer pricing is the method of pricing transactions between related parties (such as parent and subsidiary companies).
When Does TP Apply?#
- Cross-border transactions with related parties
- Specified domestic transactions above threshold
India TP Threshold#
- ₹20 crore for specified domestic transactions
- Any international transaction with related party
Arm's Length Principle#
Transactions must be priced as if between unrelated parties.
Methods to Determine ALP#
- Comparable Uncontrolled Price (CUP)
- Resale Price Method
- Cost Plus Method
- Profit Split Method
- Transactional Net Margin Method (TNMM)
Documentation Requirements#
Master File#
- Group structure
- Business description
- Intangibles
- Financials
Country-by-Country Report#
- Global allocation of income
- Tax paid in each country
Local File#
- Detailed transaction information
- Benchmarking analysis
Penalties for Non-Compliance#
- ₹100,000 for non-filing
- 2% interest on underpaid tax
- Transfer pricing adjustments
Conclusion#
Proper transfer pricing compliance is essential for companies with international related party transactions.