Tds

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

31 October 2014 A Company which is incorporated in India got a contract worth 1 crore from a company incorporated in Nigeria. The place of contract is Dubai. Indian Company Subcontracted the same to its Subsidiary Company in Dubai for 80 lakhs. Whether TDS is required to be made on the payments made by Indian Company to its Subsidiary in Dubai?
Here Contract value is 1 crore where as subcontract value is 80 Lakhs only. Still Whether any Transfer pricing provisions apply? Is it required to get audited under transfer pricing provisions.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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31 October 2014 The Hon’ble Delhi Tribunal (Bench “B”) has held that no TDS is deducted from the payments to Non-Residents when the services are rendered outside India.

Transfer pricing is the practice of charging one business for goods or services supplied by another business in the same group. Where the businesses are in different countries, the Organisation for Economic Co-operation and Development (OECD) transfer pricing guidelines generally come into play.

OECD transfer pricing guidelines and the ‘arm’s length principle’

The guidelines look to establish two facts for intergroup services: whether a service has been provided and the price that should be paid for those services.

The price should conform to the ‘arm’s length principle’: looking at any transaction between related parties, would two unconnected third parties have entered the agreement under the same terms and conditions (assuming a willing buyer and a willing seller)? If not, then the taxman can adjust the profits from the transaction.

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