1. M.V.Damania & Co.

2. What is Transfer Pricing? M.V.Damania & Co.

3. Intent of Indian TP Regulations (International transactions) Indian Co. Associated Enterprise (AE Co.) Associated Enterprise (AE Co.) Shifting of Profits Shifting of Losses India Overseas Tax @ 32.45% Tax @ lower rate approx 10% Tax Saving for the Group – Loss to Indian revenue M.V.Damania & Co.

4. International Transaction Either or both of whom are Non - Residents, A transaction between two Associated Enterprises, in the nature of Cost Sharing arrangements Tangible/intangible property Purchase, sale, lease of Borrowing/Lending of money Provision of Services M.V.Damania & Co.

5.  Capital related: 26% or more equity holding.  Management related: Appointment of one or more EDs >1/2 of the BOD.  Control: Wholly dependent know-how etc., 90% or more of raw materials supplied etc.  Loan advanced by one enterprise => 51% of the BV of total assets of the other enterprise.  One enterprise guarantees => 10% of the total borrowings of the other enterprise. M.V.Damania & Co.

6.  Common control  Firm/AOP/BOI holds not less than 10 % interest in other Firm/AOP/BOI  There exists between 2 enterprises any relationship of mutual interest as may be prescribed. M.V.Damania & Co.

7. A Ltd. (Indian Co.) has taken loan from foreign bank of ` 2.56 crore during F.Y. 2012-13. Book Value of A Ltd. is ` 5 crore as on date of borrowing and on 31 st March, 2013 Book Value is ` 6 crore. Are A Ltd. & Bank AEs ? M.V.Damania & Co.

8. SPECIFIED DOMESTIC TRANSACTIONS UNDER INCOME TAX ACT – 1961 M.V.Damania & Co.

9. Intent of TP Regulations… (Domestic transactions) Indian Co. Loss making Indian Co. Loss making Related Enterprise Profit making Shifting of expenses Shifting of income India Tax @ 32.45% No tax or reduced tax due to loss Tax @ 32.45% Reduced tax due to shifting of profits Tax Saving for the Group – Loss to Indian revenue India M.V.Damania & Co.

10. Intent of Indian TP Regulations… (Domestic transactions) Loss to Revenue – Tax Saving to the Group M.V.Damania & Co.

11. Present Loss to Revenue* – Tax Saving to the Group * By shifting of income from a profit making company to a loss making company, the group could reduce its tax liability by 16.23 for the current year, though the impact will be reversed in future years given carry forward of losses. Intent of TP Regulations…(Domestic transactions) M.V.Damania & Co.

12. SDT Inter unit transfer of goods & services by undertakings to which profit-linked deductions apply Expenditure incurredbetween relatedparties defined under section 40A Transactions between undertakings, to which profit-linked deductions apply, having close connection Any other transaction that may be specified Overview of Provisions of Section 92BA M.V.Damania & Co.

13. Sec 40A (2)(b) – Related Party Relationship can exists any time during the year M.V.Damania & Co.

14. Case 1 - Director or any relative of the Director of the taxpayer – Section 40A(2)(b)(ii) Mr. A Mr. C Assessee (Taxpayer) Mr. D Director Relative Director Covered transactions Case 2 - To an individual who has substantial interest in the business or profession of the taxpayer or relative of such individual – Section 40A(2)(b)(iii) Mr. A Mr. C Assessee (Taxpayer) Mr. D Relative Substantial interest >20% Relative Holding Structure M.V.Damania & Co.

15. Case 3 – To a Company having substantial interest in the business of the taxpayer or any director of such company or relative of the director – Section 40A(2)(b)(iv) A Ltd Mr. C Assessee (Taxpayer) Mr. D Relative Director Covered transactions Case 4 – Any other company carrying on business in which the first mentioned company has substantial interest – Section 40A(2)(b)(iv) C Ltd B Ltd Assessee (Taxpayer) A Ltd Substantial interest >20% Holding Structure Substantial interest >20% M.V.Damania & Co.

16. Case 5 – To a Company of which a director has a substantial interest in the business of the taxpayer or any director of such company or relative of the director – Section 40A(2)(b)(v) Mr. A Mr. C Assessee (Taxpayer) B Ltd Director Covered transactions Holding Structure Substantial interest >20% Mr. D Relative M.V.Damania & Co.

17. Case 6 – To a Company in which the taxpayer has substantial interest in the business of the company – Section 40A(2)(b)(vi)(B) B Ltd Assessee (Taxpayer) Covered transactions Case 7 – Any director or relative of the director of taxpayer having substantial interest in that person– Section 40A(2)(b)(vi)(B) Mr C Mr B Assessee (Taxpayer) A Ltd Substantial interest >20% Holding Structure Substantial interest >20% Director Relative D Ltd Substantial interest >20% M.V.Damania & Co.

18. A Ltd is a manufacturing Company. A Limited Purchases RM from B Ltd. of Rs. 4.5 Cr and sales FG to B Limited of Rs 5.5cr. B Limited has substantial interest in A Limited. Analyze if the above transaction is covered under SDT for A Limited and B Limited? If in the above case A ltd. Is located in SEZ(special economic zone) area. Is this transactions covered under SDT? M.V.Damania & Co.

19. A Limited (Indian Company) is holding 24 % shares in B Inc.(Overseas Company). Analyze if A Limited and B Inc. are associate enterprise. M.V.Damania & Co.