Query on transfer pricing

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Leena Lachhani (Querist)
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02 September 2024 If a private limited Indian company had invested in 100% foreign subsidiary in Vietnam
This being the first transaction to acquire shares in foreign entity ODI was done

Query 1: whether transfer pricing will apply on this transaction where the equity shares are acquired at face value in foreign subsidiary? Or this be considered as capital transaction and is outside the preview of TP

Query 2: If TP is applicable then what would be the method of valuation used for comparison?

Query 3: Is form 3CD also mandatory to be filed if transfer pricing is applicable to an entity even if the turnover is below 10cr?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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12 August 2025 Great set of questions on Transfer Pricing (TP) for your foreign subsidiary investment! Let me break it down for you:
Query 1: Is Transfer Pricing applicable on investment in equity shares at face value?
No, Transfer Pricing provisions generally do NOT apply to capital transactions like investment in shares, even if it’s a related party foreign subsidiary.
Acquisition of shares at face value is treated as a capital transaction and is outside the scope of TP as per Indian TP regulations.
TP primarily applies to international transactions involving supply of goods, services, loans, or intangible assets, not to capital investment.
Query 2: If TP is applicable, what valuation method to be used?
Since TP usually does not apply to share acquisition, valuation methods for TP don’t typically come into play here.
However, if any other transaction arises with the foreign subsidiary (like management fees, services, loans), valuation methods like Comparable Uncontrolled Price (CUP), Cost Plus, Resale Price, or TNMM are used depending on the transaction nature.
For share valuation (not TP), methods like Net Asset Value, Discounted Cash Flows, or Fair Market Value are used per SEBI or Income Tax guidelines.
Query 3: Is Form 3CD mandatory if TP is applicable but turnover is below Rs. 10 crore?
No, Form 3CD Part B (Transfer Pricing Report) is mandatory only if the taxpayer’s total turnover or gross receipts exceed Rs. 10 crore in the previous year.
For turnover below Rs. 10 crore, TP documentation and Form 3CD Part B filing is not mandatory, even if TP applies.
However, TP provisions themselves may still apply and TP documentation should be maintained.

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