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In addition, transfer pricing provisions will not apply if the arm’s-length price would
result in a downward revision in the income chargeable to tax in India.
Documentation requirements
Taxpayers are required to maintain, on an annual basis, a set of extensive information
and documents relating to international transactions undertaken with AEs or specied
domestic transactions. Rule 10D of the Income Tax Rules, 1962 prescribes detailed
information and documentation that has to be maintained by the taxpayer. Such
requirements can broadly be divided into two parts.
The rst part of the rule lists mandatory documents/ information that a taxpayer
must maintain. The extensive list under this part includes information on ownership
structure of the taxpayer, group prole, business overview of the taxpayer and AEs,
prescribed details (nature, terms, quantity, value, etc.) of international transactions
or specied domestic transactions and relevant nancial forecasts/estimates of the
taxpayer. The rule also requires the taxpayer to document a comprehensive transfer
pricing study. The requirement in this respect includes documentation of functions
performed, risks assumed, assets employed, details (nature, terms and conditions)
of relevant uncontrolled transactions, comparability analysis, benchmarking studies,
assumptions, policies, details of adjustments and explanations as to the selection of the
most appropriate transfer pricing method.
The second part of the rule requires that adequate documentation be maintained that
substantiates the information/ analysis/ studies documented under the rst part of the
rule. The second part also contains a recommended list of such supporting documents,
including government publications, reports, studies, technical publications/ market
research studies undertaken by reputable institutions, price publications, relevant
agreements, contracts, and correspondence.
Taxpayers having aggregate international transactions below the prescribed threshold
of INR 10 million and specied domestic transactions below the threshold of INR 50
million are relieved from maintaining the prescribed documentation. However, even
in these cases, it is imperative that the documentation maintained should be adequate
to substantiate the arm’s-length price of the international transactions or specied
domestic transactions.
All prescribed documents and information have to be contemporaneously maintained
(to the extent possible) and must be in place by the due date of the tax return ling.
Companies to whom transfer pricing regulations are applicable are currently required
to le their tax returns on or before 30 November following the close of the relevant tax
year. The prescribed documents must be maintained for a period of nine years from the
end of the relevant tax year, and must be updated annually on an ongoing basis.
The documentation requirements are also applicable to foreign companies deriving
income liable to Indian withholding tax.
It should be noted that, with effect from April 2009, the Central Board of Direct
Taxes (CBDT) has been empowered to formulate safe harbour rules. These rules
will specify the circumstances in which the tax authorities will accept the arm’s-
length price as declared by a taxpayer, without detailed analysis. The basic intention
behind the introduction of these rules is to reduce the impact of judgmental errors
in determining the transfer prices of international transactions or specied domestic