Secondary Adjustment in Transfer Pricing Rule
Finance Act 2017
Essential For Upcoming Bank Exams
Introduction:
According to
the Indian tax laws, an adjustment increases only the taxable income of the
taxpayer in recent times. It does not address the remittance issue of the
difference between the arm’s length transaction price (when both parties
involved in a deal are acting in self interest without any pressure from the
third party) and the transaction price. A secondary adjustment is an adjustment
which arises from imposing tax on a secondary transaction. On the other hand,
the Transfer Pricing refers to the price at which different departments of a
company can transact with each other, i.e. the trade of goods or labor between
the departments. Transfer prices are generally used when an individual entity
of a large multi-discipline firm are treated as separately run entities. Recently
the Central Board of Direct Taxes (CBDT) has introduced some rules in the Finance Act
2017 to operate the provisions of the secondary adjustment in case of Transfer Pricing.
Few Facts
about Secondary Adjustment Transfer Rules-
The Finance Act 2017 must have significant effect to the
secondary adjustment norms. These norms are based on the transfer pricing
guidelines of OECD (Organization
for Economic Co-operation and Development) for multinational companies and tax
administrations. As per as the
Finance Act 2017, an upward transfer pricing adjustment can be made on the
income of an Indian company which has earned some facilities in revenue by
transferring goods or labors to another company under the same parent group or
its associates in abroad. In that case, the additional amount should be brought
back to India within a particular time. Failing of which may be treated as a
loan offered by the Govt. of India and certain interest and a tax must be paid
along with the principal amount. Apart from that, CBDT also implement 10CB rule
which states that the time limit for paying back the excess money from those
overseas branch companies and the interest rate which may be added in case of
failure to repay within the stipulated time.
Opinion of the
Ministry of Finance-
According
to the Ministry of Finance, if the primary adjustments of a company exceed to
1Crore Rupees in the assessment year 2017-2018 and onward, then the time limit
of 90 days to repatriation of the excess money must begin. In addition
if a transfer pricing is ordered against a tax payer, the time limit for the
repatriation of money would be counted only after the approval of the appellate
authority. The annual rates will be different for the international
transactions denominated in foreign currency and Indian currency. Price Waterhouse & Co Leader Transfer
Pricing Kunj Vaidya commented this rule as a much wanted relief from the
potential comparing prospective impact.
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