Associated Enterprise under transfer pricing (2023)

INTRODUCTION

The increasing participation of multinational groups in economic activities in the country has given rise to new and complex issues emerging from transactions entered into between two or more enterprises belonging to the same multinational group. The profits derived by such enterprises carrying on business in India can be controlled by the multinational group, by manipulating the prices charged and paid in such intra-group transactions, there-by, leading to erosion of tax revenues.

TRANSFER PRICING IN INDIA

To curb the tax erosion scenarios in India, the Government has come up with various measures from time to time. Such measures include introduction of General Anti-Avoidance Rule (“GAAR”) and Specific Anti-Avoidance Rule (“SAAR”). One of such SAAR introduced by the Government is Transfer pricing provisions.

With a view to provide a statutory framework which can lead to computation of reasonable, fair and equitable profits and tax in India, in the case of such multinational enterprises, provisions were introduced in the Income Tax Act (hereinafter referred as “the act”) in the year 2001. These provisions relate computation of income from international transactions having regard to the arms-length price, meaning of associated enterprise, meaning of international transaction, determination of arm’s length price, keeping and maintaining of information and documents by persons entering into international transactions, furnishing of a report from an accountant by persons entering into such transactions.

The concept of revolves around the concept of “international transactions” or “specified domestic transactions” and “associated enterprises”. In this digital economy, it would be not wrong to say that geographical boundaries can put a hold on anyone from doing their business across the globe. Todays business exposure can be extended to any individuals, partnership firms, HUF’s or corporate entities anywhere in the world. Once, a person is clear with what constitute international or specified domestic transactions, it becomes pertinent to understand who are termed as ASSOCAITED ENTERPRISES. Income tax act has very well listed out the guidelines to define the relationship between two entities to determine if they should be treated as associated enterprises or not. Here is a small effort to understand and analyse the same so that all the professionals can easily apply these provisions while preparing transfer pricing reports.

ASSOCIATED ENTERPRISES – SECTION 92A OF THE ACT

SECTION 92A OF THE ACT IS ENUMERATED BELOW FOR EASE OF REFERENCE:

“Meaning of associated enterprise.

92A. (1) For the purposes of this section and sections 92, 92B, 92C, 92D, 92E and 92F, “associated enterprise”, in relation to another enterprise, means an enterprise—

(a) which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or

(b) 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.

(2) For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises if, at any time during the previous year—

(a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or

(b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or

(c) a loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise; or

(d) one enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or

(e) more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or

(f) more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or

(g) the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or

(h) ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or

(i) the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or

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(j) where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or

(k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or

(l) where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or

(m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed.”

Ambiguity in the above section

Section 92A (1) of the act provides that two enterprises shall be treated as Associated enterprises only when one of the enterprises participates in “management, control or capital” of the other enterprise.

Section 92A (2) of the act starts with the term- “For the purposes of sub-section (1), two enterprises shall be deemed to be associated enterprises, if…”. Then the sub-section gives various criterion on which two enterprises shall be deemed to be associated enterprises.

From the reading of section 92A (1) of the act it can be said that this section is complete in itself which means that section 92A (2) is merely illustrative and elaborates the meaning of 92A (1) of the act. However, attention is drawn to section 92A (2) which starts as follows: “For the purposes of sub-section (1)”. Thus, it can be said that Section 92A (2) defines the ambit of Section 92A (1) and sub-section (2) is not exhaustive and not merely illustrative.

There were lot of ambiguities with respect to the same and hence the Government came up with clarification w.r.t the above in the Finance Bill 2002 as enumerated below:

“The existing provisions contained in section 92A of the Income-tax Act to provide as to when two enterprises shall be deemed to be associated enterprises. It is proposed to amend sub­section (2) of the said section to clarify that the mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) are fulfilled.”

Due to ambiguity, the same is a matter of litigation for course of time. Some of the judicial pronouncements that throw insight on the above subject matter have been studied and analysed. Summary of the same is provided below1:

Here it is very important to understand the meaning of “de jure” and “de facto”.

Thus, if any one or more of the clauses of 92A (2) is not satisfied, any amount of de fac

to or de jure control will not make units associated enterprises within the meaning of Section 92A of the Income Tax Act and transfer pricing provisions shall not be attracted.

IN-DEPTH ANALYSIS OF SECTION 92A (1)

Two enterprises are said to be Associated enterprises in terms of Section 92A(1), if:

Section 92A(1)(a) – …………….. which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise…” LINEAR STRUCTURE

Section 92A(1)(b) – “……………. 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…….. ” –
LATERAL STRUCTURE

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Participation in Management/capital/control

Here if,

  • If same persons of company P participate directly in company M and indirectly in Company N or
  • If persons of Company P participate directly in both Company M and Company N or If persons of Company P participate indirectly in both Company M and Company N or
  • If persons of Company P participate in both Company M and Company N through their intermediaries

In all these scenarios, Company M and Company N are said to be Associated Enterprises by virtue of Section 92A(1)(b)

IN-DEPTH ANALYSIS OF SECTION 92A (2) – DEEMING SECTION

Section 92A (2) provides illustrative situations where in two enterprises can deemed to be considered as associated enterprises. Clause (a) to ( m) of section 92A (2) can be divided into 3 distinct segments as below2:

Clause (a) to (d)Clause ( e) and (f)Clause (g) to (l)
This segment represents participation in capital, whether equity or loan, and includes cases involving shareholding with 26% voting power, or advancement of loans or guarantees beyond a certain threshold.This segment represents participation in management, and refers to power of appointment of board of directorsThis segment refers to situations where one enterprise has de facto control over the other enterprise, i.e., “control” other than through participation in capital or management, which may be on account of commercial relationships or personal relationships. For example, supply of 90% of the raw materials required for manufacture by one enterprise being “wholly dependent” on intellectual property held by the other etc

Major key points brought by Revised Guidance Note on Transfer Pricing and amendment in the act by the Finance Act, 2002:

1. For every previous year, deemed associated enterprise will have to be identified afresh.

2. If at any time during the previous year any of the conditions in clauses (a) to (m) are satisfied, the enterprises will be deemed to be associated enterprises.

3. If conditions in section 92A (2) for treating enterprises as AEs are fulfilled at any time during the previous year, enterprise would be AE for the entire period and ALP has to be determined for the entire period.

4. In clauses (c) to (m) of section 92A(2),the words ‘directly’ or ‘indirectly’ have not been used which indicates the intention of legislature that not envisaged and hence direct relationship between two enterprises are relevant to determine whether they are associate enterprises or not.

Clause by clause analysis of Section 92A (2)

Two enterprises shall be deemed to be associated enterprises, if at any point during the previous year, if any of the following conditions are satisfied:

92A (2) (a): one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise:-

Key points:

  • Investment in shares shall not be less than 26% if the voting power.
  • Holding can be direct or indirect
  • Investee enterprise should be a company, investor enterprises could be any person
  • Investment in shares should carry voting rights (eg: investment in preference share does not provide any voting rights)

Example:

  • XYZ ltd of India holds 31% of voting power in ABC Inc, USA. Both these companies are AEs in terms of Sec 92A(2)(a)
  • ABC plc, UK holds 27% of voting power in PQR Ltd, India. Both companies are AEs.

92A (2) (b): Any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises-:-

Key Points:

  • Both the investee enterprises have to be companies.
  • One person or enterprise simultaneously holds shares carrying 26% or more voting power in each of them.
  • Both the enterprises need not hold any shares in each other if they have common 26% or more voting right holders.
  • Shareholding may be direct or indirect.

Example:

  • ABC Inc of USA holds 30% of voting power in ABC India Ltd and 34% of voting power in ABC Plc of UK.

ABC India Ltd. and ABC Plc. are AEs by virtue of section 92A(2)(b).

ABC Inc of USA and ABC India Ltd. are AEs as per section 92A(2)(a).

ABC Inc and ABC Plc. are AEs as per section 92A(2)(a).

  • ABC Inc of USA holds 30% of voting power in ABC India Ltd., 34% of voting power in ABC Plc of UK and 32% of voting power in ABC Co. of Netherlands.

ABC India Ltd., ABC Plc and ABC Co. are AEs by virtue of section 92A(2)(b)

(Video) Transfer pricing- Associated Enterprise| CA Final International Taxation| VG sir

92A (2) (c): A loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise-:

Key Points:

  • Loan must have been provided by one enterprise to another
  • The loan provided should be more than 51% of book value of total assets of the other enterprises and not market value

Example:

  • XYZ Limited, a recently incorporated entity, has obtained a loan of Rs 5 crores from PQR Ltd for setting up the manufacturing facility. The book value of total assets of XYZ Limited is Rs 9 crores.

The loan advanced constitutes 55.55% of the total book value of assets of XYZ Ltd and hence XYZ Ltd and PQR Ltd are considered as AEs

92A (2) (d): One enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise-:

Key points:

  • Guarantee should exceed 10% of the borrowings Example:
  • ABC Limited, provided guarantee towards the loan taken by XYZ ltd to the extent of Rs 11crores. Total borrowings of XYZ ltd is Rs 100 crores, hence ABC Ltd and XYZ ltd are considered to be AEs

92A (2) (e): More than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise-:

Key points:

  • If any of the following two conditions are satisfied, both enterprises are associated enterprises:
    • One enterprise appoints more than 50% of directors or members of the Board/Governing body of the other.
    • One enterprise appoints one or more executive directors/executive members of the board/governing body of the other
  • If one enterprise appoints even one person as executive director/ executive member in
    the Board/Governing body of the other, both enterprises are associated enterprises.
  • The term “governing board” would be understood in the same sense as ‘board of directors’ – i.e. a body or council that has the authority to manage the affairs of enterprise other than company. The entities in question could be artificial non-corporate bodies.
  • It is the enterprise which appoints directors/executive director(s)/member(s) in the other enterprise here. One of the directors of one enterprise does not make these appointments in the other.

Example:

  • If enterprise A appoints 5 directors on the Board of Enterprise B Ltd. The Board strength of enterprise B Ltd. is 9 directors. Then Enterprise A and Enterprise B Ltd. are associated enterprises.

But if enterprise A only has the power to appoint 50% or more directors in B Ltd. but does not actually exercise that power, then enterprises A and B Ltd. are not associated enterprises.

92A (2) (f): More than half of the directors or members of the governing board, or one or more of the executive directors or executive members of the governing board of each of the two enterprises are appointed by the same person or persons:-

Key Points:

  • This clause is applicable where the same person has
  • appointed more than one-half of the board of directors or members of the governing board; or
  • appointed one or more executive directors or executive members of the governing board of two or more enterprises
  • Mere right to appoint board of directors or executive directors would not make both entities as associated enterprise.

Example:

  • If A ltd appoints seven out of twelve members of board of Directors of B ltd and six out of ten members of board of Directors of C ltd, then by virtue of clause f B ltd and C ltd are associated enterprises.
  • If executive director of B ltd and six out of ten members of board of directors are appointed by A ltd, then also by virtue of clause f B ltd and C ltd are associated

92A (2) (g): The manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of knowhow, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights

Key Points:

  • Two enterprises are deemed to be associated, if one is wholly dependent on the other for the use of know-how, patents, copyrights etc. for the manufacture or processing of goods or articles or business carried on by such enterprise.
  • Such know-how, patents, copyrights etc. must be either owned by the other enterprise or the exclusive rights thereto must vest with the other enterprise

Examples:

  • If an Indian enterprise is wholly dependent on the licence granted by a non-resident enterprise for manufacture or processing of goods or articles or business carried out by the Indian enterprise both enterprises shall be deemed to be associated enterprises.
  • The clause will equally be applicable in case where the overseas entity is wholly dependent on the license / brand owned by the Indian entity

92A (2) (h): Ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise.

Key Points:

  • Applicable mainly to manufacturing or processing of goods, hence the said criteria should be applied exclusively to raw materials and consumables used for manufacturing or processing only.
  • 90% or more of the raw materials and consumables required for manufacturing or processing of goods or articles are supplied by
    • The other enterprises or
    • Persons specified by the other enterprise and the prices and other conditions relating to supply are influenced by the other enterprise

92A (2) (i): The goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise

Key Points:

  • Though similar to the conditions specified in clause (h) except that there are no 90% criteria in clause (i)
  • This clause covers only sale of goods manufactured and processed and not sale of traded goods

Example:

(Video) Deemed Associated Enterprises - Case i to iii - Transfer Pricing - CA Arinjay Jain - +91-9667714335

  • Where the goods or articles manufactured and processed by one enterprise, (say, enterprise A) are sold
  • to another enterprise (say, enterprise B)

or

  • sold to another enterprise (say, enterprise C) specified by enterprise B, and the prices and other conditions relating thereto are influenced by enterprise B, then enterprises A and B shall be associated enterprises

92A (2) (j): Where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual

Key Points:

  • This clause deals with a situation where one enterprise is controlled by an individual and the other enterprise is also controlled by –

(i) such individuals; or

(ii) his relative; or

(iii) jointly by such individual and his relative then both the enterprises shall be deemed as associated enterprises

92A (2) (k): Where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family, or by a relative of a member of such Hindu undivided family, or jointly by such member and his relative.

Key Points:

  • This clause envisages control of the two enterprises by the same Hindu undivided family and includes control by –

(i) a member of the Hindu undivided family, or

(ii) by a relative of a member of such Hindu undivided family, or

(iii) jointly by such member and his relatives.

92A (2) (l): Where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals

Key Points:

  • This clause seeks to cover non-corporate bodies like partnership firms, association of persons and body of individuals.
  • In case of partnership firm or association of persons or body of individuals, the other enterprise must hold not less than 10% interest in such firm, association of persons or body of individuals to be regarded as an associated enterprise

92A (2) (m): There exists between the two enterprises, any relationship of mutual interest, as may be prescribed

Key Points:

  • This is a residuary clause. No such mutual interest of relationship has been prescribed yet by CBDT

Conclusion:

Based on the above, one needs to give a thorough analysis to the relevant clause to determine if associated enterprise relation exists between two entities or not. It being a very vast subject one would need an expertise knowledge to arrive at any kind of conclusion/judgement. In a scenario of plethora of litigations, it is a huge responsibility on the shoulders of professionals to utilise their knowledge to the best and arrive at the intentions imbedded in the Government.

Note:-

1 Hon’ble ITAT in case of Page Industries Limited Vs DCIT [(2016) 159 ITD 680 (Bang)] Hon’ble Ahmedabad ITAT in case of Assistant Commissioner of Income Tax v. Veer Gems [ITA No. 1514/Ahd/2012]

Hon’ble Chennai bench of the ITAT in case of Hospira Healthcare India Pvt. Ltd. v. DCIT [Order dated 28.02.2017]

Hon’ble Gujarat High Court in Pr. CIT v. Veer Gems [TAX APPEAL NO. 338 of 2017; order dated 20.06.2017]

(Video) Associated Enterprise Meaning and definition - Transfer Pricing - CA Arinjay Jain - +91-9667714335

2 Hon’ble Chennai ITAT in case of Orchid Pharma Ltd vs DCIT (2016)….

FAQs

What is an associated enterprise? ›

(a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or. (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or.

Does transfer pricing apply to partnerships? ›

HMRC's guidance states that the meaning of 'person' for transfer pricing purposes includes partnerships/a body of persons, as well as individuals. Financing provided by a number of persons (whether in partnership or not) 'acting together' is expressly within the transfer pricing rules.

What is Section 92A of Income Tax Act? ›

As per section 92A of the Income tax act, 1961, associated enterprises can be classified under the below mentioned broad categories. Associated enterprises by, Virtue of Voting Power. Virtue of loans/guarantees given.

What are the 4 types of enterprise? ›

The main differences between them lie in how they are structured and legally owned.
  • Sole Proprietorship.
  • Partnership.
  • Private Limited Companies (Ltd.)
  • Public Limited Companies (PLC)

What are the 3 types of enterprise according to concept? ›

An enterprise may be a corporation, a quasi- corporation, a non-profit institution, or an unincorporated enterprise. Enterprises can be classified in different categories according to their size; for this purpose, different criteria may be used, but the most common is number of people employed.

What are the three types of transfer pricing? ›

Generally, companies can determine transfer prices three different ways: market-based transfer prices, cost- based transfer prices, and negotiated transfer prices.

Who do transfer pricing rules apply to? ›

The definition of control for transfer pricing applies only where one of the persons is a company or a partnership which is controlled by the other person (which could be an individual, a partnership or a company), therefore the transfer pricing provisions do not apply to transactions between individuals.

What are the disadvantages of transfer pricing? ›

What Are the Disadvantages of Transfer Pricing? Since transfer prices are usually equal to, or lower than, market prices, the entity selling the product is liable to get less revenue. There is also the fact that it is a complicated process.

What are the 4 types of pricing methods? ›

There are many different pricing strategies, but Competitive Pricing, Cost-plus Pricing, Markup Pricing and Demand Pricing are four common methods for small business owners to use.

What are the 5 methods of transferring? ›

Here are five widely used transfer pricing methods your business should consider.
  • Comparable Uncontrolled Price. ...
  • Cost-Plus. ...
  • Resale-Minus. ...
  • Transactional Net Margin (TNMM) ...
  • Profit Split.

What is the purpose of transfer pricing? ›

Purpose of Transfer Pricing

Determination of a fair and equitable price of a transaction that takes place between two related enterprises involving the purchase and sale of goods and services; Other purposes include accounting for a transaction.

What is global transfer pricing policy of associated enterprises? ›

Transfer Pricing as a subject means undertaking global international transactions between the related parties (we call it associated enterprises), at a value which is as per the market conditions (Arm's Length Price), so that the profit allocations between the countries is fair and appropriate.

What is Section 4IA and 4IB? ›

While preparing TDS return, 94I code was selected for deduction of TDS from Rent. But now there are two section codes in the Name 4IA or 4IB which have been replaced with 94I. 4IA :- 4IA code will be selected when 2% TDS will be deducted for the use of any machinery or plant or equipment.

What is sub section 5 of * Section 90 Section 90a? ›

“(5) The certificate of being a resident in a country outside India or specified territory outside India, as the case may be, referred to in sub-section (4), shall be necessary but not a sufficient condition for claiming any relief under the agreement referred to therein.”

What are the six types of enterprises? ›

Six major types of business structures
  • Sole proprietorship.
  • General partnerships.
  • Limited liability partnership.
  • Limited partnership.
  • Limited liability company.
  • Business corporations.

What are the two classifications of enterprise? ›

Information about Classification of Enterprises - Micro, Small And Medium Enterprises covers topics like and Classification of Enterprises - Micro, Small And Medium Enterprises Example, for B Com 2022 Exam.

What are the 4 core areas of enterprise? ›

These include profits, employee development, customer service and fleet growth. By making your branch fun, and working well with your team, you'll be able to directly influence all of these core areas.

What are the 5 enterprises? ›

So there are five real startup types. Lifestyle startups, small businesses, high growth companies, intrapreneurship ventures, and social ventures.

What are the types enterprise? ›

the main types of small and medium-sized enterprises are: - Traditional; - Entrepreneurial; - Administrative.

What are types of enterprises? ›

Types of enterprise with legal entity: The foundation , the cooperative association , the private limited company (BV) and the limited liability company (NV). Types of enterprise without legal entity: The sole proprietorship, the partnership , the general partnership (VOF) and the commandite partnership (CV).

What are any 4 types of transfers possible? ›

Types of Transfer:
  • The Following are The Various Types of Transfers:
  • (A) Production Transfers:
  • (B) Replacement Transfers:
  • (C) Versatility Transfers:
  • (D) Shift Transfers:
  • (E) Remedial Transfers:
  • (F) Miscellaneous Transfers:

What are the four types of transfer? ›

Different types of transfer in the jobs are listed below:
  • (1) Production transfer.
  • (2) Replacement transfer.
  • (3) Versatility transfer.
  • (4) Shift transfer.
  • (5) Penal transfer.

What are the factors of transfer pricing? ›

Factors Affecting Multinational Transfer Prices
  • (i) Transfer Prices as a Tool to Minimize Worldwide Taxes, Duties and Tariffs:
  • (ii) Avoidance of Financial Restrictions on Profit Repatriation Imposed by Government:
  • (iii) Avoidance of Divisional Conflicts:
  • (iv) Overall Goal Congruence:
  • (v) Inflation:

Does transfer pricing apply to small companies? ›

Transfer pricing rules do not apply to small businesses unless that business has transactions with a 'non-exempt country'.

Who is exempt from paying transfer duty? ›

Property transfers are exempt from transfer duty in the following circumstances: Marriage in community of property. If someone who owns a property gets married in community of property, his or her spouse will automatically become the owner of a half-share of the property, without paying any transfer duty. Divorce.

What is the general transfer pricing rule? ›

The general economic transfer price rule is that the minimum must be greater than or equal to the marginal cost of the selling division. In economics and business management, a marginal cost is equal to the total new expense incurred from the creation of one additional unit.

Who benefits from transfer pricing? ›

Transfer pricing is a technique used by multinational corporations to shift profits out of the countries where they operate and into tax havens that involves a multinational selling itself goods and services an artificially high price.

What is transfer pricing in simple terms? ›

Transfer pricing is an accounting practice that represents the price that one division in a company charges another division for goods and services provided.

Why is transfer pricing a problem? ›

Abusive transfer pricing results in the erosion of tax bases and profit shifting from countries with high tax rates to those with lower tax rates, thus enabling tax avoidance and evasion.

What are the 3 main basis for pricing? ›

Cost-Based Pricing. Value-Based Pricing. Competition-Based Pricing.

What are the 6 types of pricing? ›

To help you make the right choice, below I've listed six pricing strategies in marketing to consider for your small business.
  • Price skimming. Best for: Businesses introducing brand new products or services. ...
  • Penetration pricing. ...
  • Competitive pricing. ...
  • Charm pricing. ...
  • Prestige pricing. ...
  • Loss-leader pricing.
27 May 2021

What are the three types of transfers? ›

THREE main types of business transfer are possible: (1) a transfer to family members; (2) a transfer to employees (employee buy-out); or (3) a transfer to a third party.

What are the three basic method of transfer? ›

Heat can be transferred in three ways: by conduction, by convection, and by radiation.
  • Conduction is the transfer of energy from one molecule to another by direct contact. ...
  • Convection is the movement of heat by a fluid such as water or air. ...
  • Radiation is the transfer of heat by electromagnetic waves.

What are the three forms of transfer? ›

There are three types of thermal energy transfer: conduction, radiation, and convection. Convection is a cyclical process that only occurs in fluids.

Why is transfer price important for a MNE? ›

The determination of the transfer price affects the allocation of taxable income among the associated enterprises of an MNE group.

What is OECD transfer pricing guidelines? ›

The OECD Transfer Pricing Guidelines provide guidance on the application of the “arm's length principle”, which is the international consensus on the valuation of cross-border transactions between associated enterprises.

What is Section 194IA & 194IB? ›

According to Section 194IA, the buyer of an immobile property must deduct TDS at 1% while making the payment to the owner or seller of the property. Some conditions that apply to the above rule include: TDS cut is made by the buyer and not by the seller. Tax is applicable only for transactions over ₹50 lakhs.

What is difference between 194IA and 194IB? ›

Section 194IA of the Income Tax Act contains guidelines regarding the payment of TDS by taxpayers. The other section that has a bearing on the payment of TDS in India is Section 194 IB. Tax Deducted at Source, much like the name suggests, is a tax levied on certain income and deducted by the remitter.

What is Section 1431 A? ›

Section 143(1)(a): Communication of Proposed Adjustment

This usually happens in cases where the the employee has not intimated his employer about the deductions he intends to claim and claims these deductions/exemptions himself at the time of filing of the Income Tax Return.

What is the difference between 90 and 90A? ›

Relief under Section 90 and 90A

If there is a DTAA with such country, then tax relief can be claimed u/s 90, and if the DTAA is with the specified associations, then tax relief can be claimed u/s 90A.

What is sub section 5 of section 115BAC? ›

(1) The option to be exercised in accordance with the provisions of sub-section (5) of section 115BAC by a person, being an individual or Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall be in Form No.

What is Section 44 A? ›

Section 44A in The Income- Tax Act, 1995. 44A. 1 Special provision for deduction in the case of trade, professional or similar association.

How do you determine an associated company? ›

The corporations are associated if both corporations are controlled by the same person or group of persons. Corporations may be associated because the same group of persons controls both corporations, but the members of this group do not act together and have no other connection to each other.

Can an individual be an associated enterprise? ›

Voting Power in Multiple Companies

Two enterprises would be considered to be associated if any person or enterprise holds, directly or indirectly, holds shares carrying a minimum of 26% of the voting power in each of such enterprises.

What is an example of an enterprise company? ›

Examples of enterprises

Pelz-Sharpe says all Fortune 500 companies are considered enterprises. That includes companies such as Ford, Microsoft, GE, and Oracle. Edge's list includes Walmart, Exxon, Apple, Amazon, UnitedHealth Group, McKesson, CVS, and AT&T.

What are associated companies for tax purposes? ›

any member of a related group that controls one of the corporations is related to each member of an unrelated group that controls the other corporation; or. each member of an unrelated group that controls one of the corporations is related to at least one member of an unrelated group that controls the other corporation ...

What are the examples of associate company? ›

Practical Example

Berkshire Hathaway, a conglomerate holding company, holds significant minority holdings in multiple organizations. It owns 17.6% of American Express and 26.7% of the Kraft Heinz Company, among many others. Legally, this means that the companies are associate companies of Berkshire Hathaway.

What is a 51% associated company? ›

Company B is a related 51% group company of Company A in an accounting period if for any part of the accounting period: (1)Company A is a 51% subsidiary of Company B; (2)Company B is a 51% subsidiary of Company A; or. (3)Company A and Company B are both 51% subsidiaries of another company.

What Makes 2 companies associated? ›

A company is connected with another company if either the same person has control of both companies (or that person and a person connected with him together have control of both companies), or if a group of two or more persons has control of each company and the group consists of the same persons (or could be regarded ...

Do transfer pricing rules apply to individuals? ›

The definition of control for transfer pricing applies only where one of the persons is a company or a partnership which is controlled by the other person (which could be an individual, a partnership or a company), therefore the transfer pricing provisions do not apply to transactions between individuals.

Is transfer pricing applicable to individuals? ›

Transfer pricing laws in India are codified in the Income-tax Act, 1961 (the Act). The law is applicable to all taxpayers: corporates and non-corporates, residents and non-residents, with income chargeable to tax in India.

What is the difference between an enterprise and a company? ›

In most cases, an enterprise is any company that has multiple divisions, levels, departments, or groups that all contribute toward shared company goals and profit targets.

What are the two types of business enterprise? ›

Types of Business Entities
  • Sole Proprietorship. This is a business run by one individual for his or her own benefit. ...
  • Partnerships-General and Limited. ...
  • Limited Liability Company (LLC) ...
  • Corporation. ...
  • Advantages/Disadvantages.

What is difference between enterprise and business? ›

A business (also called firm) is a legally recognized organizational entity designed to provide goods and/or services to consumers. An enterprise is a business and the ways it is formed i.e. Privately held, publicly held or Pvt Ltd Companies are different ways company chooses to distribute their stocks/shares.

What is the difference between associated company and subsidiary company? ›

An associate company is one where a parent company owns a minority stake. With associate companies, the parent does not consolidate the financial statements of the associate company. By comparison, a subsidiary is a company with a parent company that owns a majority share.

What is an associate company as per companies Act? ›

'associate company', in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.

What is a subsidiary or associated company? ›

Where a company controls or majority-owns another company, that company is a subsidiary company. A parent company or holding company will then control or own the subsidiary.

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