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transfer pricing

06 February 2018

There is a company in India (Co.A) and a company in USA (Co.B) and both have common directors. Co. A has a client in USA. Due to heavy bank charges on foreign payments, the client pays all the money of services received by it from Co. A to Co. B
Co. A recovers this money from Co.B as if it has given services to Co.B by raising invoice in the name of Co.B instead of raising invoice on the actual client.
Is transfer pricing applicable on such transaction between Co.A and Co.B?

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4 Replies

M.Ajay kumar (ca) (99 Points)
Replied 06 February 2018

No, transfer pricing provisions were not applicable as Co.A anf Co.B are not associated enterprises by virtue of section 92A...merely because 2 companies are having common directors they will not be treated as associated enterprises unless, one enterprise appoints more than 50% of board of directors of another company

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I am Supriya (94 Points)
Replied 07 February 2018

Co.A has 2 directors and the same are the directors of Co.B
Doesn't that mean more than 50% of B.O.Ds of Co.B are selected by Co.A?

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M.Ajay kumar (ca) (99 Points)
Replied 07 February 2018

it depends purely on the agreement between the companies, if the shareholders of one company by a resolution appoint directors of other company constituting more than 50% , then they will be treated as associated enterprises for the purpose of chapter-X, merely because two companies have same directors it doesn't means that they are associated enterprises...suppose if more than 50% of the directors of Co.A and Co.B were appointed by Co.C then all the three enterprises are associated enterprises for the purpose of transfer pricing provisions...