Subsidy and Holding Transactions

Co Act 2013 35 views 1 replies
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CA
35 Points Joined August 2019

Hello,

  1. Can a subsidiary make advance payment to holding company? (with proper documents and with transfer pricing rules)
  2. If the purchase does not happen, when must the amount be repaid? (Time Limit for Refund - if no purchase happens)

Thanks.

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On 04 June 2025 at 23:37 Report
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Master in Accounts & high court Advocate
8756 Points Joined December 2011

Advance Payment to Holding Company A subsidiary can make advance payments to its holding company, but it's essential to ensure compliance with transfer pricing regulations and proper documentation. Key Considerations

- *Transfer Pricing*: The advance payment should be at an arm's length price, and the subsidiary should maintain documentation to support this. - 

*Proper Documentation*: The subsidiary should have a written agreement or contract with the holding company outlining the terms of the advance payment, including repayment terms. -

 *Business Purpose*: The advance payment should have a legitimate business purpose, such as securing future goods or services.

Repayment Terms If the purchase does not happen, the holding company should repay the advance amount to the subsidiary. The repayment terms should be specified in the agreement between the two companies. 

Time Limit for Refund The time limit for refund depends on the agreement between the subsidiary and the holding company. In the absence of a specific agreement, it's reasonable to expect repayment within a reasonable timeframe, typically: - 

*Within 6 months to 1 year*: Depending on the terms of the agreement and the circumstances of the non-purchase. -

 *Interest on Refund*: The agreement may specify interest on the refund amount if not repaid within the agreed timeframe. Recommendations -

 *Consult a Tax Professional*: Consult a tax professional or transfer pricing expert to ensure compliance with transfer pricing regulations and proper documentation. -

*Clear Agreement*: Have a clear and written agreement outlining the terms of the advance payment, including repayment terms and interest (if applicable). -

 *Monitor and Document*: Monitor the advance payment and document all transactions, including any repayments or interest charged.

By following these guidelines, you can ensure that the advance payment is made in compliance with transfer pricing regulations and proper documentation.

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On 05 June 2025 at 09:32


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