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India is one of those countries that view Transfer Pricing very seriously, at least amongst Asia Pacific countries. India requires an Annual Certification to accompany the auditor report. As we are fully aware that India is opening up its economies. The authorities would like to ensure that there is no unnecessary hanky-panky by investors to siphon foreign exchange from its country. Hence,the setting up proper transfer pricing methodology/documentation to comply with the authorities is indeed one of the hot topics amongst financial controllers.

Transfer pricing regulations started in Year 2000. As India’s fiscal year ends on 31st March, hence Indian subsidiaries with international links felt its impact in its submission of the annual financial statement ending 31st March 2001. Indian Tax authorities will need proof or evidence in order to believe that international transactions with their domestic organization are above board. Thus, if a group of companies has Indian subsidiaries, it is essential that their Indian subsidiaries need to keep records, registers, systems and general information to justify transfer pricing with its international counterpart.

In establishing the transfer pricing of the Company, it is essential that a Core Documentation File should be set up in the event of dispute or query from the Indian Inland Revenue. A typical TP Core Documentation File should include the profile of the international /multinational group, justification of the transfer prices with its function vs risk analysis, records , registers or systems (refer to details).

Let’s discuss more in detail what’s in the Core Documentation File :

Continue reading Transfer Pricing System: Core Documentation File (Part A)