Can somebody tell me the provision of transfer pricing with regards to if an organisation is providing service and is a captive unit of Parent organization and has incurred some captial expenditure on the improvment of unit will that capital expenditure also attract transfer pricing provisions and some percentage will be added to the cost when we are billing that cost to the Parent organization.
Thanks
TP is invoked only if the capital expenditure and improvement is carried out using goods and services from parties related to the Parent or with whom Parent has substantial interest by way of ownership or business connection. If the parent has specified the work to be done from a particular contractor to enable a volume discount on account of its entire volume and relations with them and price is lower on account of total volume of business the parent does with them, then TP will not be invoked. However if parent forces a transaction with someone at a particular price and difference is more than 5% of ALP, then TP will be invoked.
VIKAS VERMA & CO
New Delhi
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