Details:

• At India’s HCL Technologies, the fifth-largest of India’s info-tech outsourcers,workers get to grade the boss, and everybody can see the ratings
• Even Vineet Nayar, CEO of Indian outsourcer HCL Technologies, needs to work on his time-management skills. Last year, his team rated him 3.6 out of 5 for how well he keeps projects running on schedule. That was among Nayar’s lowest scores from the 81 managers who rated him, and everybody at HCL knows it.
• CEO, Nayar’s grades, along with ratings for the top 20 managers at HCL, are published on the company’s intranet for anyone who wants to see them. Employees also have the capability to see their own supervisors’ scores.
• While many companies have “360-degree reviews”—which compile feedback from peers, managers, and underlings—HCL may be the only one in the world that broadcasts the results throughout the organization.
• Customers ranging from Swedish insurer Skandia to British publisher Pearson have went to HCL to understand it.
• Also, a new case study on HCL by two Harvard Business School professors is being taught in one of the school’s most popular executive education courses and is being considered for a mandatory MBA class.
• So far, Nayar’s methods appear to be having an impact. HCL’s once-troubling attrition rate, which at 20.4% was among the highest in the industry when Nayar took over as president in 2005, has dropped three quarters in a row, to 17.2% (though it is still higher than that of many rivals). This progress is no small achievement in a country where young engineers has a very high attritution level.
• In October, HCL posted a 42% rise in quarterly net income. It attributed part of that growth to its success in winning complex, multi-year projects—the very ones that require the most sought-after engineers. Annual revenues, at $1.5 billion, are up 42% from the year before.

Related posts:

1. 360-Degree Appraisal

[extracted from Wikipedia which list down the top fifty metropolitan areas in India by population, as of 2007. The above combined population of these 50 metros accounts for approximately one-eighth of the national population.]

Related posts:

1. How To Set Up Branches in India
2. India : Updates
3. Top Ten Indian Dynamic Companies
4. Outsourcing News: Australia To Outsource Bank Jobs To India
5. Fringe Benefit Tax In India: Extra Tax Burden On The Employers

He further stressed that:

• the company was looking to buy parcels of land in major cities in the two countries for either mixed township or residential development, and hoped to announce a deal within the next six months:

• If the land are available then, it expects revenue contribution by 2009 from these two countries;

• Glomac was looking at six major cities in India, namely Chennai, Bangalore, Hyderabad, Mumbai, Calcutta and Madurai, and Hanoi and Ho Chi Minh in Vietnam for the expansion drive.

(Source: The Edge, Malaysia (20/9/06)

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2. Gamuda Made Its Maiden Foray Into Vietnam
3. Deutsche Bank In its Maiden Foray Into Vietnam
4. Exploring IPO In Vietnam
5. Vietnam: An Investment Opportunity
6. Vietnam’s Global Competition Ranking Falls
7. Vietnam bank in line for first foreign IPO-sources

The rationale for implementing this tax on the employer lies in the inherent difficulty in isolating the ‘personal element’ where there is collective enjoyment of such benefits and attributing the same directly to the employee. This is so especially where the expenditure incurred by the employer is ostensibly for purposes of the business but includes, in partial measure, a benefit of a personal nature. Moreover, in cases where the employer directly reimburses the employee for expenses incurred, it becomes difficult to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of the employer.

The fringe benefits is outlined in section 115WB as:
any privilege, service, facility or amenity directly or indirectly provided by an employer to his employees (including former employees) by reason of their employment. This includes employee compensation other than the wages, tips, health insurance, life insurance and pension plans.

The following specific types or nature of benefits are taxable under Fringe Benefit Tax:

· entertainment;
· festival celebrations;
· gifts;
· use of club facilities;
· provision of hospitality of every kind to any person whether by way of food and beverage or in any other manner, excluding food or beverages provided to the employees in the office or factory;
· maintenance of guest house;
· conference;
· employee welfare;
· use of health club, sports and similar facilities;
· sales promotion, including publicity;
· conveyance, tour and travel, including foreign travel expenses;
· hotel boarding and lodging;
· repair, running and maintenance of motor cars;
· repair, running and maintenance of aircraft;
· consumption of fuel other than industrial fuel;
· use of telephone;
· scholarship to the children of the employees.

How do we compute the Fringe Benefit tax for the company:
Firstly, we derive the value of fringe benefits incurred namely the total expense deducted in the company’s book. Next, a certain percentage ( varies with the different type of expenses) will be deducted. The difference thereon will be taxed at the rate of 30% (basic rate) + 10% (surcharge)+ 2% (education cess) which is effectively at 33.66% .
As mentioned above, each expenses attracting the fringe benefit tax rate of 33.66% varies from 10 per cent to 50 per cent depending upon the expense incurred: For example, for the use of telephones 10 per cent fringe benefit tax will be charged, while entertainment expenses, festival expenses, gifts, use of club facilities, etc will be taxed at the rate of 50 per cent.
For illustration purpose:
Say, total personal telephone cost in the books amounted to 10,000 rupees. This 10,000 rupee is then tax at 10% ( for this particular expense) which is 1,000 rupees and then multiply by 33.66% to get the fringe benefit tax payable of 33.66 rupees to the Indian government.

Fringe Benefit Tax And Section 115WD Income Tax Act

Section 115WE outlines the procedure for the assessment of the return of fringe benefits filed by the employer and the determination of tax or interest payable or refund due and in either case the issue of intimation to that effect.
An employer liable to pay fringe benefit tax is required to furnish a return of fringe benefits before the due date. Presently, there is no special form issue by the Indian authority. The due date is the same for the company’s submission of its corporate tax.
The tax is payable in respect of the value of fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year.
Also, note that the benefit does not have to be provided by the employer directly for him to attract fringe benefit tax. fringe benefit tax may still be applied if the benefit is provided by a third party or an associate of the employer or by under an arrangement with the employer.
A new Chapter XII-H is to be inserted in the Income-tax Act containing sections 115W to 115WL, which provides for the levy of additional income tax on fringe benefits.
The chapter is divided into three parts. Part A contains the meaning of certain expressions used, part B enumerates the basis of charge, and part C delineates the procedures for filing of return in respect of fringe benefits, assessment and the payment of tax thereon.
(Notes: Perquisites which can be directly attributed to the employees will continue to be taxed in their hands in accordance with the existing provisions of section 17(2) of the Income-tax Act and subject to the method of valuation outlined in rule 3 of the Income-tax Rules.)

Fringe Benefit Tax in India versus Other countries:

Though India just implemented this tax, for information purposes, other countries like United States, the United Kingdom, Canada, Australia, New Zealand, Japan and some other nations have all along have implemented this tax.
Interestingly, Indian Fringe Benefit Act was modeled based on the Australian standard. The main contrast is that fringe benefit tax is be taxed at between 10 per cent and 50 per cent in India, whereas in Australia it is taxed at a flat rate of 60%.
It is reported that that the fringe benefits tax is likely to result in India Inc incurring an additional expenditure of about Rs 25,000 crore.

Also, be aware of the changes of FBT in the Budget 2006 announcement:

In the budget 2006, the provisions relating to FBT are proposed to be amended as follows:
To exclude from FBT:

1. the sale promotion expenditure in the nature of payment to persons of repute ( brand ambassadors)
2. the expenditure on providing free samples of medicines or medical equipment provided to doctors; and
3. contributions made to approved superannuation funds up INR 100,000 per employee, per year.

To reduce the deemed value of fringe benefits from 20% to 5% of the expenditure on:

1. tour and travel ( including foreign travel)
2. provision of hospitality, use of hotel, boarding and lodging facilities in the case of airlines and shipping companies.

Related posts:

1. MALAYSIA TAX BUDGET 2010: PERSONAL INCOME TAX INCENTIVES FOR THOSE WORKING IN THE ISKANDAR REGION.
2. MALAYSIA TAX BUDGET 2010: PERSONAL TAX INCENTIVE FOR BROADBAND EXPENSES
3. Personal Tax Planning:Benefit-In-Kind & Perquisites
4. New tax Structure For REITs Seen Benefiting Big Players More
5. Technical Summary Of IAS 26 Accounting and Reporting by Retirement Benefit Plans
6. MALAYSIA TAX BUDGET 2010: TOP PERSONAL TAX RATE REDUCED BY 1%
7. MALAYSIA TAX BUDGET 2010 BUSINESS HIGHLIGHTS

Basic reasons for setting up branches in India:

Setting up branches in various states of India is inevitable as it is a very vast country. If you situate your head quarter in say Bangalore ( presently the silicon valley of India) which is in Southern India and attempting to fly across to Punjab in Northern India is an insurmountable task.Perhaps, it’s the only way to go from the logistic standpoint.

Secondly, by setting up branches supports, it can provide the necessary infrastructure for your company’s business to expand in the hugh potential markets of India.

From operation standpoint, it can smoothen your company’s cash / fund collections as we would have collection points at branches itself.

Lastly but not least, there could be the issue of sales tax. Not forgetting that at this moment of writing there are still five states in India who has not yet adopted VAT ( Sales tax being modified into VAT) and this complete uniformity of VAT might take at least another year to complete.

Requirements in Setting Up A Branch In India

Company can open branches at desired places, by passing a resolution in the AGM / EGM / Board of Director Meeting. After obtaining the authorization by way of a resolution, the company can go ahead with setting up branches.

1.0 SALES TAX/VAT REGISTRATION

In order to conduct a business in branches, your company needs to apply for sales tax registration. Your objective is to obtain the Local and the Central Sales Tax Number.

In a state, a company can have more than one place of business, hence the place, where the first sales registration has taken place would then become your Main office and other places would become branches of the main office within the state. However, if you choose this to be the Main office, you need to obtain branch certificate for other units.

2.0 DOCUMENTS REQUIRED

For the purpose of Sales Tax registration for the branches, the following documents are required:

2.1. Rental Agreement of the premises / No Objection letter from the owner / Distributors, who is owning the building or as the case may be.

2.2 Memorandum of Association / Articles of Association of the Company,

2.3 Board Resolution of the Company to set up a branch in a particular state with address.

2.4 Photographs of Directors.

2.5 Sales Tax Registration Application form duly -filled and signed off by the Directors.

3.0 OPERATION OF BRANCHES:

Once you have legally incorporate the branch, your company has the choice to either operate the branch as a true branch by investing all the infrastructure like manpower, fixed assets and others

However, many companies in India prefer to use C& F agent to help in the operating of their branches. This therefore will save a lot of overheads.

3.1. CARRYING AND FORWARDING AGENTS (C& F):

C& F are outsiders appointed by the company and its remuneration is based on the stipulated terms and conditions of an agreement with them. They will look after the operation of your branches for a commission fixed by the company. Their rates, shall depend on the effort of C& F’s time spent and investments made. Incidentally, there are quite a number of long established C&F agents in India.

3.2. INVOICING, ACCOUNTING, INVENTORY AND BANK ACCOUNTS

Invoicing:

Whether you are using a C&F agent or having your own staff, each branch should have separate invoice numbers for both internal controls and VAT/sales tax purposes:
For example say in Chennai Branch, the invoice no. can start from CHN0000001 and for Jalander branch say JAL 00001 and so forth,

Invoices generated from the Branch Module of your Accounting system should have the address of the Branch, where sales conducted on the top of the invoice. In other words, by looking at the invoices, the authorities should be able to identify the point that particular invoice is generated from the branch.

Sales tax of the state where the branch is situated has to be applied in each branch module while raising invoices.

Your branch sales register should able to generate the following format::

COMPANY ABC INDIA PVT LTD – XXX BRANCH

SALES REGISTER FOR THE MONTH OF xxx ‘2006

Inv. No Date Customer NAME Total Sales Tax Net Sales

However, if you were to enlist the help of the C& F agent instead of establishing a proper branch:
The “branch C&F”, would assist you to procure the order and collect the sales proceeds and passes it on to your Head Office through order form. Your Head Office would then able to generate the invoice for the branches’ customers and courier the invoice to the Branch. Based on the Invoice, the branch would dispatch the goods to the customers

The branch module should handle all registration of your branches customers. This should be isolated from your Head Office billing module.

Accounting:

Separate set of books of accounts needs to be maintained for each branch, and needs to be audited separately either by the same Head office’s auditor or by another appointed auditors for branches audit purposes.

Initially it would be better that your Head Office should keep the branches books of accounts on behalf of the branch and exercise total control on the branches on its accounts and finance matter.

If the branch turnover increases, perhaps then you might want to look at the option of appointing a branch accountant. At end of each month, the Head office, would prepare consolidated Financial Statement covering all branches transactions.

Inventory:

If your accounting system has Branch Module, that module should able to keep track of the movement of stocks to the branches and sales of the stocks by the branches. All inventory particulars should be updated. Any point of time, the inventory in each branch in the branch module should tally with physical stock of the branch.

Bank Account:

In order to smoothen the collections, it is advisable to open bank accounts at each branch so that the Branches can deposit cash / cheques / Demand Drafts into their local bank and if your headquarter is in say Bangalore Office, you can then transfer the fund online to your main account in Bangalore..

Related posts:

1. Outsourcing News: Australia To Outsource Bank Jobs To India
2. Fringe Benefit Tax In India: Extra Tax Burden On The Employers
3. India : Updates
4. Top Fifty Metropolitan Areas In India

T.N. Manoharan who took over as President of ICAI (Institute of Chartered Accountants of India) quotes that ICAI is in the midst of getting out the following new accounting standards:

• on a more immediate concern to get out the accounting standards on presentation of financial statements (equivalent to IAS 32),
• followed next on recognition and measurement of financial statements(IAS 39) and disclosures in financial statements (IFRS 7),
• the standard on financial statement on financial instruments are expected to become applicable in the next 4 – 5 months
• going to prepare accounting standards to deal with insurance contracts, agriculture business, investment property and share-based payment which will take about a year in order for these new standards to be applicable,

Appended below are the existing Accounting Standards (ASs):

AS1 Disclosure of Acounting Policies
AS2 Valuation of Inventories
AS3 Cash Flow Statements
AS4 Contingencies and Events Occurring After the Balance Sheet Date
AS5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies
AS6 Depreciation Accounting
AS7 Construction Contracts (revised 2002)
AS7 Accounting for Construction Contracts
AS8 Accounting for Research and Development
AS9 Revenue Recognition
AS10 Accounting for Fixed Assets
AS11 The Effects of Changes in Foreign Exchange Rates (revised 2003)
AS12 Accounting for Government Grants
AS13 Accounting for Investments
AS14 Accounting for Amalgamations
AS15 Accounting for Retirement Benefits in the Financial Statement of Employers
AS16 Borrowing Costs
AS17 Segment Reporting
AS18 Related Party Disclosures
AS19 Leases
AS20 Earnings Per Share
AS21 Consolidated Financial Statements
AS22 Accounting for Taxes on Income
AS23 Accounting for Investments in Associates in Consolidated Financial Statements
AS24 Discontinuing Operations
AS25 Interim Financial Reporting
AS26 Intangible Assets
AS27 Financial Reporting of Interests in Joint Ventures
AS28 Impairment of Assets
AS29 Provisions, Contingent Liabilities and Contingent Assets

(Source: www.business-standard.com)

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2. Malaysia: Updates From MASB & FRS 2004 To Present FRS
3. Listing Of Technical Summaries Of IFRS & IAS
4. Technical Summary Of IAS 27 Consolidated and Separate Financial Statements
5. Highlight of Changes – Financial Reporting Standard 108
6. Technical Summary Of IFRS 7 Financial Instruments: Disclosures
7. Technical Summary Of IAS 28 Investments in Associates

Typical transactions in respect to which CUP may be adopted:-

1. Transfer of goods
2. Provision of services
3. Intangibles
4. Loans, provision of finance

The Comparable uncontrolled price method shall be determined in the following manner:-

1. Identify the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction
2. Such price is adjusted to account for differences, if any, between the international transaction and the uncontrolled transaction or between the enterprises entering into such transactions, which could materially affect the price in the open market
3. The price so adjusted is taken to be the arm’s length price in relation to the international transaction
4. The arm’s length price is compared with the price charged in the international transaction
5. If the price charged in the international transaction is lower than the arm’s length price or the price paid in the international transaction is higher than the arm’s length price then an adjustment is to be made to the price charged or paid in the international transaction by the amount of such variance

b) Resale Price Method:- This method evaluates whether the gross margin charged in the controlled transaction is at arms length by comparing with uncontrolled transactions. This method evaluates the process of functions performed rather than the products. The resale price is generally applied in the case where the reseller does not add any substantial value to the tangible property and no physical alteration in product is done. The Resale price method shall be determined from the following:-

1. Identify the international transaction of purchase of property or services
2. Identify the price at which such property or services are resold or provided to an unrelated party
3. Deduct the normal gross profit margin derived by the enterprise from the resale price of such property or services. The normal gross profit margin is that margin which the enterprise would earn from purchase of the similar product from an unrelated party and the resale of the same to another unrelated party.
4. Deduct also expenses incurred in connection with the purchase of goods from the price so arrived
5. Adjust the prices so computed for the differences between the uncontrolled transaction and the international transaction. These differences could be functional and other differences including differences in accounting practices. Further these differences should be such as would materially affect the amount of gross profit margin in the open market
6. The adjusted price arrived at is the arm’s length price for the property purchased or services obtained
7. Substitute the arm’s length price for the price charged in the international transaction and make adjustments to the income returned accordingly.

c) Cost Plus Method:- Under this method an appropriate mark-up would be added to the cost incurred by the supplier or service provider. The price that is arrived at after considering the mark-up method would be considered as Arms Length Price. This method probably is most useful where semi-finished goods are sold between related parties, where related parties have concluded joint facility agreements or long term buy-&-supply arrangements or where controlled transaction is the provision of services.

Typical transactions where cost plus method maybe adopted are:-

1. Provision of services
2. Joint facility arrangements
3. Transfer of semi-finished goods
4. Long term buying and selling arrangements.

The Cost Plus Method shall be determined from the following:

1. The direct and indirect cost of production incurred by the enterprise in respect of property transferred or services provided to an associated enterprise
2. The amount of a normal gross profit mark-up to such costs (computed according to the same accounting norms) arising from the transfer or provision of the same or similar property or services by the enterprise, or by an unrelated enterprise, in a comparable uncontrolled transaction, or a number of such transaction, is determined
3. The normal gross profit mark-up referred to in the above sub-clause is adjusted to take into account the functional and other differences, if any, between the international transaction and the comparable uncontrolled transaction, or between the enterprises entering into such transactions, which could materially affect such profit mark-up in the open market
4. The costs referred to in the first sub-clause are increased by the adjusted profit mark-up arrived at under the third sub-clause
5. The sum so arrived at is taken to be an arm’s length price in relation to the supply of the property or provision of services by the enterprise.

d) Profit Split Method:- A transactional profit method that identifies the combined profit to be split for the Associated Enterprises from a controlled transaction and then splits those profits between the AEs based upon an economically valid basis that approximates the division of profits that would have been anticipated and reflected in an agreement made at arms length. This method is applicable only if it involves transfer of unique intangibles or multiple international transactions, which are so interrelated that they cannot be evaluated separately for the purpose of determining the arms length of any one transaction.

The following steps are to be taken under profit split method :-

1. The first step is to determine the total profit earned by the parties from a controlled transaction. The profit split method allocates the total integrated profits related to a controlled transaction, and not the total profits of the group as a whole. The profit to be split is generally the operating profit, before the deduction of interest and taxes. In some cases, it may be appropriate to split the gross profit.
2. The second step is to split the profit between the parties based on the relative value of their contributions to the non-arm’s length transactions, considering the functions performed, the assets used, and the risks assumed by each non-arm’s length party, in relation to what arm’s length parties would have received.

d) Transaction Net Margin Method:- This method primarily focuses on net margin released by the Associate Enterprise (foreign parties) in their controlled transaction with that of uncontrolled transaction. The net margin is not a derivative of a product alone, but derivative of various process viz; nature of the market, cost practice followed by the company, the presence of intangibles etc.

Typical kinds of transactions where the transactional net margin method may be used are:-

1. Provision of services
2. Distribution of finished products where resale price method cannot be adequately applied
3. Transfer of semi-finished goods.

The following steps are to be taken under Transaction Net Margin Method:-

1. Identify the net profit margin realized by the enterprise from an International transaction. The net profit margin may be computed in relation to costs incurred or sales effected or assets employed or any other relevant base
2. Net profit margin from a comparable uncontrolled transaction is identified
3. This net profit margin is adjusted to take into account the differences if any between the international transaction and the comparable uncontrolled transaction. The differences should be those that could materially affect the net profit margin in the open market
4. The adjusted net profit margin is taken into account to arrive at the arm’s length price in relation to the international transaction.

Methods Considered:-

Since the assessee enterprise is engaged in manufacturing and selling of the products, the methods Profit Split Method and Resale Price Method are not relevant for the assessee enterprise for the determination of ALP because:-

1. Resale price method as mentioned above is mainly concerned with the resale of the product without there being any addition of substantial value to the product nor there being any alteration in the product. Now, as the assessee enterprise is mainly engaged in the manufacturing business this method is of no relevance.
2. Profit Split Method is basically applicable where intangibles are involved or multiple international transactions are involved which are so interrelated that they cannot be evaluated separately for the purpose of determining the arms length of any one transaction. In our case as there are no intangibles involved and also that each transaction is separately identifiable, this method also holds no importance for us in determining the ALP.

Therefore, we are left with basically only three methods of pricing for the purpose of determination of ALP i.e.:-

1. Comparable Uncontrolled Price Method
2. Cost plus method
3. Transaction Net Margin Method,

Factors that should be taken into account for selecting the Most Appropriate Method of the above three:-

1. Nature and class of international transactions
2. Class or classes of associated enterprises and the functions performed by them taking into account the assets employed or to be employed and risks assumed by such enterprises
3. Availability, coverage and reliability of data. For instance, data relating to transactions entered into by the enterprise itself would be more reliable than the data relating to transactions entered into by third parties
4. The degree of comparability
5. The extent to which reliable and accurate adjustments can be made to account for the difference between the transactions.

Related posts:

1. Transfer Pricing System: Definitions & Relevant Acts (Part B)
2. WHAT IS ARM’S LENGTH PRINCIPLE AND WHAT ARE THE METHOD TO DETERMINE ARM’S LENGTH
3. Transfer Pricing System: Core Documentation File (Part A)
4. Reasons For Implementing Intra Group Transfer Pricing(Part1)
5. TRANSFER PRICING IS AN IMPENDING MAJOR TAX CHALLENGE FOR COMPANIES ESPECIALLY MULTINATIONALS
6. Bonia Proposes Main Board Transfer, 1-for-2 bonus, Share Split
7. Drafting/Formulating Management Services As Part of Management Fee/Transfer Pricing Strategy

• are the terms and definitions used in Transfer Pricing.
• the relevant acts pertaining to Transfer Pricing in India.
• a sample report from an accountant to be furnished under Section 92E

Transfer Pricing Regulations: are applicable to all enterprises that enter into an “International Transaction” with an “Associated Enterprise“. The objective is to arrive at a comparable price, as available, in relation to transactions with unrelated parties in open market conditions and is known as the “Arm’s Length Price”.

“Associated Enterprise”: The basic criterion to determine an “Associated Enterprise” is the participation in management, control or capital (ownership) of one enterprise by another enterprise. The participation may be direct or indirect or through one or more intermediaries. The concept of control extends not only to control through holding shares or voting power or the power to appoint the management of an enterprise, but also through debt and control over various components of the business activity such as control over raw materials, sales and intangibles.

Section 92A (1) of the Income Tax Act, 1961 defines “Associated Enterprise”, in relation to another enterprise as one which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.
“International Transaction”: An “International Transaction” is essentially a cross border transaction between two or more associated enterprises in any sort of property, tangible or intangible, or in the provision of services, lending of money, etc. At least one of the parties to the transaction must be a non-resident entering into one or more of the following transactions:

• Purchase, sale or lease of tangible or intangible property,
• Provision of services,
• Lending or borrowing of money,
• Any transaction having a bearing on profit, income or assets.
• Mutual agreement between “associated enterprises” for allocation / apportionment of any cost, contribution or expense.

“Arm’s Length Price”: The Transfer Pricing Regulations have provided that any income arising from an international transaction between “associated enterprises shall be computed having regard to the “arm’s length price”, which is the price that would be charged in the transaction if it had been entered into by unrelated parties in similar conditions.
Section 92 – Computation of income from international transaction having regard to arms length price

(1) Any income arising from an international transaction shall be computed having regard to the arms length price.
Explanation.For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arms length price.
(2) Where in an international transaction, two or more associated enterprises enter into a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises, the cost or expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arms length price of such benefit, service or facility, as the case may be.
(3) The provisions of this section shall not apply in a case where the computation of income under sub-section (1) or the determination of the allowance for any expense or interest under that sub-section, or the determination of any cost or expense allocated or apportioned, or, as the case may be, contributed under sub-section (2), has the effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of entries made in the books of account in respect of the previous year in which the international transaction was entered into.]
Section 92 D – Maintenance and keeping of information and document by persons entering into an international transaction

(1) Every person who has entered into an international transaction shall keep and maintain such information and document in respect thereof, as may be prescribed.
(2) Without prejudice to the provisions contained in sub-section (1), the Board may prescribe the period for which the information and document shall be kept and maintained under that sub-section.
(3) The Assessing Officer or the Commissioner (Appeals) may, in the course of any proceeding under this Act, require any person who has entered into an international transaction to furnish any information or document in respect thereof, as may be prescribed under sub-section (1), within a period of thirty days from the date of receipt of a notice issued in this regard:
Provided that the Assessing Officer or the Commissioner (Appeals) may, on an application made by such person, extend the period of thirty days by a further period not exceeding thirty days

Section 92E – Report from an accountant to be furnished by persons entering into international transaction

Every person who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form ( Form 3CEB) duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed.
Rule 10D – Information and documents to be kept and maintained
(1) Every person who has entered into an international transaction shall keep and maintain the following information and documents, namely:
(a) a description of the ownership structure of the assessee enterprise with details of shares or other ownership interest held therein by other enterprises;
(b) a profile of the multinational group of which the assessee enterprise is a part along with the name, address, legal status and country of tax residence of each of the enterprises comprised in the group with whom international transactions have been entered into by the assessee, and
ownership linkages among them;
(c) a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted;
(d) the nature and terms (including prices) of international transactions entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction;
(e) a description of the functions performed, risks assumed and assets employed or to be employed by the assessee and by the associated enterprises involved in the international transaction;
(f) a record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions entered into by the assessee;
(g) a record of uncontrolled transactions taken into account for analysing their comparability with the international transactions entered into, including a record of the nature, terms and conditions relating to any uncontrolled transaction with third parties which may be of relevance to the pricing of the international transactions;
(h) a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant international transaction;
(i) a description of the methods considered for determining the arms length price in relation to each international transaction or class of transaction, the method selected as the most appropriate method along with explanations as to why such method was so selected, and how such method was applied in each case;
(j) a record of the actual working carried out for determining the arms length price, including details of the comparable data and financial information used in applying the most appropriate method, and adjustments, if any, which were made to account for differences between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions;
(k) the assumptions, policies and price negotiations, if any, which have critically affected the determination of the arms length price;
(l) details of the adjustments, if any, made to transfer prices to align them with arms length prices determined under these rules and consequent adjustment made to the total income for tax purposes;
(m) any other information, data or document, including information or data relating to the associated enterprise, which may be relevant for determination of the arms length price.
(2) Nothing contained in sub-rule (1) shall apply in a case where the aggregate value, as recorded in the books of account, of international transactions entered into by the assessee does not exceed one crore rupees :
Provided that the assessee shall be required to substantiate, on the basis of material available with him, that income arising from international transactions entered into by him has been computed in accordance with section 92.
(3) The information specified in sub-rule (1) shall be supported by authentic documents, which may include the following:
(a) official publications, reports, studies and data bases from the Government of the country of residence of the associated enterprise, or of any other country;
(b) reports of market research studies carried out and technical publications brought out by institutions of national or international repute;
(c) price publications including stock exchange and commodity market quotations;
(d) published accounts and financial statements relating to the business affairs of the associated enterprises;
(e) agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of transactions similar to the international transactions;
(f) letters and other correspondence documenting any terms negotiated between the assessee and the associated enterprise;
(g) documents normally issued in connection with various transactions under the accounting practices followed.
(4) The information and documents specified under sub-rules (1) and (2), should, as far as possible, be contemporaneous and should exist latest by the specified date referred to in clause (iv) of section 92F:
Provided that where an international transaction continues to have effect over more than one previous year, fresh documentation need not be maintained separately in respect of each previous year, unless there is any significant change in the nature or terms of the international transaction, in the assumptions made, or in any other factor which could influence the transfer price, and in the case of such significant change, fresh documentation as may be necessary under sub-rules (1) and (2) shall be maintained bringing out the impact of the change on the pricing of the international transaction.
(5) The information and documents specified in sub-rules (1) and (2) shall be kept and maintained for a period of eight years from the end of the relevant assessment year.

Sample Report From An Accountant to be furnished under Section 92E
FORM NO. 3CEB

[See rule 10E]
Report from an accountant to be furnished under section
92E relating to international transaction(s)
1. *I/We have examined the accounts and records of _______________________________________________ (name and address of the assessee with PAN) relating to the international transactions entered into by the assessee during the previous year ending on 31st March, ______________
2. In *my/our opinion proper information and documents as are prescribed have been kept by the assessee in respect of the international transaction(s) entered into so far as appears from *my/our examination of the records of the assessee.
3. The particulars required to be furnished under section 92E are given in the Annexure to this Form. In *my/our opinion and to the best of my/our information and according to the explanations given to *me/us, the particulars given in the Annexure are true and correct.
**Signed
Name :
Address :
Membership No. :
Place : _____________
Date : _____________
Notes :
1. *Delete whichever is not applicable.
2. **This report has to be signed by -
(i) a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); or
(ii) any person who, in relation to any State, is, by virtue of the provisions in sub-section (2) of section 226 of
the Companies Act, 1956 (1 of 1956), entitled to be appointed to act as an auditor of companies registered
in that State.
ANNEXURE TO FORM NO. 3CEB
Particulars relating to international transactions required to befurnished under section 92E of the Income-tax Act, 1961
PART A

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