Transfer Pricing Documentation (Section 92D r.w. rule 10D ...

1 1 Transfer Pricing Documentation (Section 92D rule 10D) and Global Documentation framework2 Agenda Rules & Regulations TP Documentation flow Executive Summary Corporate/ Group Overview Industry Background Transfer Pricing regulations & their applicability FAR Analysis Economic Analysis Points to be considered Practical Toolkit for TP Documentation Global Documentation3 Rules & Regulations 4TP Documentation RegulationsSection 92D(1) Everypersonwhohasenteredintoaninternatio naltransactionorspecifieddomestictransac tionshallkeepandmaintainsuchinformationa nddocumentinrespectthereof,asmaybeprescr ibedinRule10D;Providedthattheperson,bein gaconstituententityofaninternationalgrou p, TP 10D states that Every person who has entered into an international transaction or a specified domestic transaction shall keep and maintain the following information and documents, namely.

2 TP Documentation requirement as per Rule 10D of the Indian Income Tax Rules, 1962 Nature and terms (including price) of international transactions Description of functions performed, risk assumed and assets employed (functional analysis) Records of economic and market analysis (economic analysis) Record of budgets, forecasts, financial estimates Any other record of analysis (if, any) to evaluate comparability of international transaction with uncontrolled transaction(s) Description of method considered with reasons of rejection of other methods Ownership Structure Profile of multinational group Business description/ Profile of industry Details of Transfer Pricing adjustment(s) made (if, any)

3 Any other information data, documents like invoices, agreements, price related correspondence, RelatedPrice RelatedTransaction Related6 Self review of intercompany Transfer Pricing Penalty protection Basis for the selecting method in Form 3 CEB To be prepared for Transfer Pricing auditTP Documentation why necessaryEffective communication of TP policy is critical for tax authorities to appreciate and approve Transfer Pricing documentation7 Transfer Pricing Documentation Flow8 ExecutivesummaryIndustryanalysisCompanya nalysisIntercompanytransactionsFunctiona lanalysisEvaluationof methodsEconomicanalysisConclusionsDocume ntationFlowTP Documentation Best practice9 Executive Summary10 Executive ithastoessentiallybecrispandsuccinct!

4 : thebusinessofthegroupandthetaxpayerindic atingtherelationbetweenthegroupandthetax payer, theactivityperformed/servicesprovided, characterisationoftheentitiesinvolved, listofallinternationaltransactions(withv alueandthemethodologyapplied) resultoftheeconomicanalysis;and ,aTPdocumentneedstomentionthefactthatthe resultsarepertinenttothatfinancialyearan dtheresultsmayneedtobeupdatedbasedonlate stfinancialsresult,changeinFARprofileort heleveloftangible/intangibleassetowned( )11 Executive Summary ( )FormatInternationalTransactionsTransfer PricingMethodXYZI ndiaNumberofComparableCompaniesResultofC omparabilityAnalysis35th 65thPercentile/ArithmeticmeanPLIT otalValueofTransaction(AmountinINR)

5 MarginPurchase of IT PeripheralsResalePriceMethodGrossprofit/ Sales1,007,671, *3,632,517 ProvisionofservicesTransactionalNetMargi nMethodOperatingprofit/OperatingCost70,2 00,27112% ,436,810 NANANAR ecoveryofexpenses1,282,105 The aggregate of accounts receivable and payable outstanding as on 31 March 2019, amounts to Rs. 3,85,769 and 4,67,557 respectively from/to the AEs. Since the receivables/payables are arising out of the main transaction, there is no need to benchmark the same separately. *Sincereworkactivityincomeformspartofthe maintransactionofpurchaseofITperipherals , Overview13 Corporate/Group Overview Thissectionshouldprovideanoverviewoftheo perationalandlegalstructureoftheCompanya nditsGroupandGroupcompanies Thesectionshouldcontainabriefbackground( dateofincorporation,employeebase,globalp resenceetc.)

6 ,theoperational/shareholdingstructure(pr eferablyinaflowchart),shortdescriptionof thebusinesssegments,activitiesperformed/ servicesofferedundereachsegmentandthepro ductprofile Companyoverviewmaymentionthearrangement( fromtheagreement)withthegroupcompany Overviewoffinancialperformanceoftheentit yforwhichthedocumentationispreparedmaybe provided ChemicalIndenting: Providing indenting services as a sales representative to its AEs2 Advanced InterlayersTrading: Importing finished products from its AEs and their resale in India; andIndenting: Providing indenting services as a sales representative to its AEs3 Heat Transfer FluidsTrading: Importing finished products from its AEs and their resale in India.

7 AndIndenting: Providing indenting services as a sales representative to its AEs4 TexanolTrading: Importing finished products from its AEs and their resale in India14 Industry Background15 Industry BackgroundIndustryBackgroundconsistsofth efollowing: Classificationofthecompanyinanindustry-O verviewoftheIndustry CurrenttrendsintheIndustry Keyvaluedrivers Keychallenges Keycompetitors SWOT analysis RegulatoryFramework DomesticmarketoftheIndustry GlobalscenariooftheIndustry Futureoutlook16 Group Overview and Industry Background Key points Shareholdingstructuretoprovidelistofalls hareholdersandshouldbeconfirmedwiththecl ienteveryyear Financialoverviewshouldprovideabriefofth efinancialperformance( )

8 ,revealnumberstillPBT,mentionstatutoryye arending Documentingasolidindustryoverviewisextre melycritical shouldestablishthelinkbetweentheposition ofthetaxpayerinthatindustry,thecurrentma rketdynamicsandtheinternationaltransacti onsenteredintobythetaxpayer Whenacompanyprovidesauxiliaryservicestom ainproduct( ),theneventheindustryoverviewofthemainpr oductshouldbeincludedinthereport. Industrysectionshouldmostlybeexplainedby graphs,chartsandflowcharts Sourceshouldbementioned Consistencyinpresentation( ,legalnamesoftheentitiesetc.) Consistencyinunits(inamounts) absolutenumbers,thousands,millions,crore s, and Industry Background Impact of Current events18 Corporate and Industry Background Impact of Current events19 Transfer Pricing Regulation and their Applicability20 Transfer Pricing Regulations and their Determineinternationaltransactionu/s92 BfromForm3 CEB(NatureofTransaction,NameofAEandValue incurrency) Thesectionshouldlisttheidentifiedinterna tionaltransactions AEsandvaluewise Aspecifiedformatforinternationaltransact iondisclosureisinthetablestatedbelow:Int ernational TransactionsName of Associated EnterpriseValue (Rs.)

9 XYZ Advisors Pte. of advisory servicesXXXXYZA dvisors Pte. of other servicesXXX21 Transfer Pricing Regulations and their Applicability ( ) ,directlyorindirectly,sharescarryingnotl essthantwenty-sixpercentofthevotingpower intheotherenterprise Section92(A)(a)Financialservices-FundMan agementactivitiesABCC ompany Ltd., (2)(b)BPOS ervices/MarketResearch22 FAR Analysis23 FAR AnalysisRule 10D -Documents to be maintained under section 92D (e) a description of the functions performed, risks assumedand assets employedor to be employed by the assessee and by the associated enterprises involved in the international transaction OECD TP Guidelines Ananalysisofthefunctionsperformed(taking intoaccountassetsusedandrisksassumed)bya ssociatedenterprisesincontrolledtransact ionsandbyindependententerprisesincompara bleuncontrolledtransactions 24 FAR Analysis ( )WhatisFAR?

10 , ,includingmanagementchargesandfinancialt ransactions(ifany) currently, ,thenatureandscopeofthefunctionsperforme dandsometimesthevalueoftheinternationalt ransaction, Analysis ( )TransitioningfromFARtoFARM analysis India&manydevelopingcountrieshavetraditi onallybeenstrongadvocatesofsourcebasedta xation. OECD'sguidelinesintermsofFARA nalysishavebeenpracticedandreliancethere onisalsoupheldbytheIndianCourtsinmanyrul ings. DevelopingcountrieslikeChinaorIndiahaveb eenadvocatingexpandingthescopeofprofitat tributioninsourcejurisdiction,basedonnot justFARanalysisbutalsoconsideringthe'mar ket'analysis,alsoreferredtoasFARM analysis. Arenewedfocuson'valuecreation'postBEPS isaccompaniedbyevenstrongerconsideration ofdemandsidefactorsintheTPanalysisinsome ofthedevelopingjurisdictions.