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In an recent ITAT ruling reported in (2013) TaxCorp (TP) 5176 (ITAT), the ITAT said “Transfer pricing rules do not apply in these circumstances (i) to an investment in share capital of overseas companies & (ii) to transactions where no “income” has arisen.

Taxpayers in India must take precaution in their transfer pricing reporting of transactions involving investment into foreign subsidiaries.

“Finance Act 2012” has introduced a plethora of amendments. One of the critical amendments was to widen the scope of “international transactions” as per Section 92B. The definition the term 'international transaction' have not been discuss by revenue

Section 92B:

This section gives the meaning of ‘International Transaction’. This section is now amended with retrospective effect from 1-4-2002. By this amendment, it is provided that the expression ‘International Transaction’ shall include —

(i) the purchase, sale, transfer, lease or use of tangible property, including building, transportation vehicle, machinery, equipment, tools, plant, furniture, commodity and any other article or thing.

(ii) the purchase, sale, transfer, lease or use of intangible property, including transfer of ownership or the provision for use of rights regarding land, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any business or commercial rights of similar nature.

(iii) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment receivable or any other debt arising during the course of business.

(iv) provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service.

(v) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has a bearing on the profit, income, losses, or assets of such enterprise at the time of the transaction or at future date. Further, the expression ‘Intangible Property’ has also been defined w.e.f. 1-4-2002 to include 12 items listed in the amended section. This refers to various types of intangible properties related to marketing, technology, artistic, data processing, engineering, customer, control, human capital, location, goodwill and similar items which derive their value from intellectual content rather than physical attributes.

These amendments, the definition of international transactions is very wide and would cover any of transactions which were earlier not regarded as international transactions and were also not reported for an example:

(1) Receipt of money towards share subscription / Issuance of shares

(2) Guarantees and deferred payments, even Transactions related to business restructuring irrespective of whether the income arising out of such restructuring is chargeable to tax in India or not are now covered under the definition of international transaction and hence would have to be reported. Similarly, on intangibles, creation / enhancement of marketing intangible through significant spent on advertisement & marketing has been regarded by tax authorities as a separate transaction. Taxpayers till now were partially successful in defending the said approach on the grounds that such expenses were incurred for selling their own products and was not an international transaction.

Further, revenue have not discussed the AAR ruling reported in (2012) TaxCorp (INTL) 4451 (AAR) held that Transfer Pricing provisions were applicable even if there is no income taxable under IT Act, and also taxpayers can refer another ruling reported in (2009) TaxCorp (TP) 3108 (ITAT-DELHI) where ITAT bench held that the interest free loan granted by an Indian entity to its associated enterprise is required to comply with arm’s length principle and cannot be characterized as quasi equity.


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Category Income Tax, Other Articles by - Rupesh Srivastava 



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