Indian company incurs certain expenditure for purchase and making of dyes of certain parts,which are sent to its holding company in Germany.In Germany they are assembled and samples made which are sent to Indian clients to check if they suite their need.If the customer is satisfied, then the customer would enter into agreement with Indian company which will assemble that machine(sample of which is being assembled now in germany)in India.The Germany company,which is Indian company's holding company reimburses this amount for purchases made to make the sample to the Indian company.
The amount received is greater than the actual expenditure incurred.
So should this be booked as foreign currency gain.or be reduced from research and development cost.
Does this entire transaction involve an element of transfer pricing?
(The design of machine if approved by customer will be property of German Company)
CAclubindia
