Applicability of transfer pricing?

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 September 2013 Dear Experts,

Please need your view(s) in the below matter:-

A) A Private Limited Co. has Recd. remittances in respect to Share Application Money and Issued Share Capital from Associate / Parent Company situated overseas for Rs. 60 Lacs(Application Money-600000 shares@10/) and Rs. 10 Crores (100 Lacs shares @10/-each).

Would the above transaction cover /attract the TP regulations in India?

Please suggest the experts view.

Thanks

Querist : Anonymous

Querist : Anonymous (Querist)

25 September 2013 Dear Experts,

Please suggest your valuable inputs..

Querist : Anonymous

Querist : Anonymous (Querist)

26 September 2013 Dear Experts

Please share your views on this urgent matter..Thanks

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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14 July 2024 Regarding the transaction involving remittances received by a Private Limited Company from its Associate or Parent Company overseas for Share Application Money and Issued Share Capital, here are the considerations regarding Transfer Pricing (TP) regulations in India:

1. **Transfer Pricing (TP) Regulations:**
- Transfer Pricing regulations in India primarily apply to transactions between associated enterprises (related parties) that involve the transfer of goods, services, or intangible assets.
- These regulations aim to ensure that transactions between related parties are conducted at arm's length, meaning the same terms and conditions as transactions between unrelated parties.

2. **Applicability to Share Application Money and Issued Share Capital:**
- Share Application Money: When a company receives share application money from an overseas associate or parent company, the transaction typically involves equity financing rather than a commercial transaction covered by TP regulations.
- Issued Share Capital: Similarly, the issuance of shares to an overseas associate or parent company for capital infusion is a capital transaction and not typically subject to TP regulations.

3. **Arm's Length Principle:**
- The key principle in TP regulations is the Arm's Length Principle (ALP), which ensures that prices or rates charged in transactions between related parties are comparable to those charged in transactions between unrelated parties under similar circumstances.

4. **TP Documentation and Compliance:**
- While the transaction described (receipt of share application money and issuance of share capital) generally does not fall under traditional TP regulations, it is advisable for the company to maintain proper documentation and ensure that the transactions are conducted at arm's length to avoid any potential scrutiny.

5. **Expert Opinion:**
- For specific advice tailored to your company's situation and to ensure compliance with Indian tax laws, including TP regulations, it is recommended to consult with a qualified tax advisor or TP expert. They can provide detailed guidance based on the exact nature of the transaction, the relationship between the parties, and other relevant factors.

In conclusion, while the described transactions (receipt of share application money and issuance of share capital) are primarily capital transactions and may not typically trigger TP regulations in India, it's crucial to maintain proper documentation and ensure that the transactions are conducted at arm's length to mitigate any potential risks.

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