CA Final International Taxation MCQs – Transfer Pricing answers with detailed explanations are given at the end of questions. The pattern of CA Final International Taxation question paper is 30% objective and 70% descriptive under the Old and New Schemes.
1. In its evolutionary stage, Transfer pricing, was introduced for setting the right (i.e., arm’s length) price, that should be charged for product sold or services rendered by –
a. One segment of an enterprise, to another segment of the same enterprise.
b. One enterprise to another enterprise
c. Both A and B
d. Neither A nor B
2. The purpose of transfer pricing was to ensure that the profit of a tax holiday segment were not –
a) Overstated
b) Understated
c) A or B
d) Neither A nor B
3. The purpose of transfer pricing was to ensure that the profit of a non-tax holiday segment were not –
a) Overstated
b) Understated
c) A or B
d) Neither A nor B
4. The purpose of transfer pricing was to ensure that the expenses of a tax holiday segment are not ……………………. and transferred to non-tax holiday unit –
a) Overstated
b) Understated
c) A or B
d) Neither A nor B
5. The purpose of transfer pricing was to ensure that the expenses of a non-tax holiday segment were not –
a) Overstated
b) Understated
c) A or B
d) Neither A nor B
6. Transfer pricing provisions are applicable on transactions between –
a) Two group companies of same MNE group
b) A foreign company and its Indian branch
c) An Indian company and its subsidiary availing tax holiday
d) All of the above
7. Transfer Price means the price, which is charged between –
a. Two or more entities of a MNE [Associated Enterprises (AE’ s)] operating in one country.
b. Two or more entities of a MNE [Associated Enterprises (AE’ s)] operating in different countries
c. Both A and B
d. Neither A nor B
8. X Ltd. operates in Country A, wherein the tax rates are 30%. It intends to sell goods costing USD 100 to a customer in Country B for USD 150. To save taxes, X Ltd. incorporated a subsidiary in Country Y, namely Subsidiary C, where tax rate is 10% and sold the goods to C for USD 125, which in turn, sold the goods to buyer in Country B for USD 150.
In such a case, tax will be: –
a) USD15
b) USD 10
c) USD 5
d) None of the above
9. Transfer pricing is, arriving at of the price for goods and services, which are transacted between
a) Controlled legal entities within an enterprise
b) Independent entities within an enterprise
c) Both A and B
d) Neither A nor B
10. Tax planning opportunities arise due to difference in ………… amongst various Countries
a) Tax rates
b) Tax exemptions
c) Both A and B
d) Neither A nor B
CA Final International Taxation MCQs – Transfer Pricing
11. Transactions between unrelated entities are carried out at –
a. Arm’s Length Price
b. Control Price
c. Either A or B
d. Both A and B
12. The objective of transfer pricing is to ensure that –
a) Taxes are paid in Country of residence
b) Taxes are paid in Country of Source
c) Taxes are not paid
d) Taxes are paid in the jurisdiction where economic activity takes place
13. Transfer pricing analysis aims to arrive at arm’s length price on the assumption that the parties to the transaction are ……….. parties –
a) Independent
b) Related
c) Controlled
d) Both B and C
14. Which of the following is true in the context of transfer pricing –
a. Income arising from international transaction shall be computed on the basis of arm’s length price.
b. Any expense/ allowance for any interest, for computing income for international transaction shall also be computed on the basis of arm’s length price of such expense/interest.
c. The cost or expenses allocated or apportioned between Associated enterprises under a mutual agreement or arrangement shall be at arm’s length price.
d. All of the above
15. The transfer pricing provisions are intended to ensure that –
a) Profits are not understated
b) Expenses are not understated
c) Losses are not overstated
d) Both A and C
16. The basic intention underlying the transfer pricing regulations is to prevent –
a) Shifting of profits by increasing prices charged by overseas entity or paid by Indian entity in international transactions
b) Shifting of profits by decreasing prices charged by overseas entity
c) Shifting of profits by decreasing prices paid by Indian entity
d) None of the above
17. Transfer pricing provision should not be applied in cases where the adoption of the arm’s length price would result in a –
a) Reducing the tax payable in India
b) Increasing the tax payable in India
c) Increasing the expenditure of the Indian company
d) Both A and C
18. ABC Ltd. purchased goods at USD 200 per unit from its AE in USA. However, it was purchasing the same material at USD 250 per unit from independent third party located in USA. In this case, the Arm’s Length Price would be:
a. Rs 200
b. Rs 250
c. A or B
d. Neither A nor B
19. As per Section 92A (1) of the Act, Associated enterprise refers to an enterprise which participates directly or indirectly or through one or more intermediaries in:
a) Management of the other enterprise
b) Control of the other enterprise
c) Capital of the other enterprise
d) All of the above
20. Prior to amendment made by Finance Act, 2001, the AO was empowered to compute reasonable amount of profit by application of which of the following Rules of Income-Tax Rules, 1962:
a) Rule 10
b) Rule 11
c) Both A and B
d) None of the above
CA Final International Taxation MCQs – Transfer Pricing
21. Two enterprises shall be deemed to be an associated enterprise when one enterprise directly holds shares carrying:
a) 26% or less of the voting power in the other enterprise.
b) 25% of the voting power in the other enterprise.
c) 26% or more of the voting power in the other enterprise.
d) None of the above
22. Two enterprises shall be deemed to be an associated enterprise when one enterprise indirectly holds shares carrying:
a) 26% or less of the voting power in the other enterprise.
b) 25% of the voting power in the other enterprise.
c) 26% or more of the voting power in the other enterprise.
d) None of the above
23. Generally, two enterprises shall be deemed to be associated enterprise when one enterprise holds, directly or indirectly 26% or more ………….. in the other enterprise
a) Equity shares
b) Preference Shares
c) Compulsorily convertible debentures
d) Non-convertible debentures
24. FCO holds 100% equity shares (all equity shares carry equal voting rights) in ICO 1.
ICO 1 holds 49% equity shares (all equity shares carry equal voting rights) in ICO 2. Who all will be the Associated enterprises?
a) FCO and ICO1
b) ICO1 and ICO2
c) FCO and ICO2
d) All of the above
25. Two enterprises shall be deemed to be associated enterprise if any common person or enterprise holds, directly or indirectly, shares carrying –
a) 25% voting power in each of such enterprises,
b) 26% or more of the voting power in each of such enterprises
c) Less than 26% of the voting power in each of such enterprises
d) None of the above
26. Case Study
FCO holds 26% equity shares in ICO 1. FCO also holds 26% shares in ICO 2. Who all will be the Associated enterprises?
a) FCO and ICO1
b) FCO and ICO2
c) ICO1 and ICO2
d) All of the above
27. Case study
FCO holds 26% equity shares in ICO 1. FCO also holds 100% shares in ICO 2. ICO 2 holds 49% shares in ICO 3. Who all will be Associated enterprises, based on the given facts?
a) FCO and ICO1, FCO and ICO2
b) ICO2 and ICO1, ICO2 and ICO3
c) FCO and ICO3, ICO1 and ICO3
d) All of the above
28. Two enterprises shall be deemed to be associated enterprises if a loan advanced by one enterprise to the other enterprise constitutes –
a) 50% or more of the book value of the total assets of the other enterprise.
b) Less than 50% of the book value of the total assets of the other enterprise.
c) More than 51% of the book value of the total assets of the other enterprise.
d) 51% or more of the book value of the total assets of the other enterprise.
29. HOLO Inc. (USA) advanced loan of Rs 130 crores to POLO India. Select the correct statement:
a) Both are Associated Enterprises when POLO India has total assets worth Rs 250 crores
b) Both are Associated Enterprises when POLO India has total assets worth Rs 260 crores
c) Both are Associated Enterprises when POLO India has total assets worth Rs 300 crores
d) None of the above
30. A Inc. owns 20% equity shares of B India. A has also advanced loan of Rs 200 crores to B, whose total assets are Rs 300 crores. In such a case A and B would be ………………….
a) Associated Enterprises
b) Independent parties
c) Strangers
d) Relatives
CA Final International Taxation MCQs – Transfer Pricing
31. Two enterprises shall be deemed to be associated enterprises when one enterprise:
a) Guarantees 10% or more of the total borrowings of the other enterprise.
b) Guarantees less than 10% of the total borrowings of the other enterprise
c) Holds 26% or more voting power in other enterprises
d) Both A and C
32. Zero India Private Ltd. borrowed Rs 500 crores from an Indian Bank. Y Inc. (USA) guaranteed the borrowings of Indian Company. Select the correct statement:
a) Both are associated enterprises when the Y Inc. guarantees Rs 40 crores on behalf of Zero India
b) Both are associated enterprises when the Y Inc. guarantees Rs 49 crores on behalf of Zero India
c) Both are associated enterprises when the Y Inc. guarantees Rs 50 crores on behalf of Zero India
d) Both are associated enterprises irrespective of amount of guarantee made by Y Inc.
33. Two enterprises, shall be deemed to be Associated Enterprises, when one enterprise appoints
a) More than half of the Board of Directors or members of the Governing Board of other enterprise
b) One or more Executive Directors of the Governing Board of other enterprise
c) One or more Executive Members of the Governing Board of other enterprise.
d) All of the above
34. Two enterprises, shall be deemed to be Associated Enterprises when one enterprise:
a) Has power to appoint one or more executive members of the Governing Board of other enterprise, even if it actually does not appoint them
b) Actually, appoints one or more executive members of the Governing Board of other enterprise , exercising power of such appointment
c) Neither A nor B
d) Both A and B
35. In which of the following cases would the Indian Company and Foreign company would be deemed as associated enterprise:
a) Foreign company has made the appointment of 5 out of 11 Board of Directors of the Governing Board in Indian company.
b) Foreign company has made the appointment of 8 out of 15 Board of Directors of the Governing Board in Indian company.
c) Both A and B
d) Neither of the above
36. In which scenario, Indian Company and Foreign company would be deemed as associated enterprise:
a) Foreign company has made the appointment of Mr. B as an Executive Director of the Governing Board of the Indian Company.
b) Foreign company has made the appointment of Mr. C as an Executive Member of the Governing Board of the Indian Company.
c) Both A and B
d) None of the above
37. In which of the following scenarios, two enterprises shall be deemed to be associated enterprises:
a) More than half of the Board of Directors or members of the Governing Board of each of the two enterprises, are appointed by same person or persons, or
b) One or more Executive Directors of the Governing Board of each of the two enterprises, are appointed by same person or persons, or
c) One or more Executive Members of the Governing Board of each of the two enterprises, are appointed by same person or persons.
d) All of the above
38. In which of the following scenarios, two enterprises shall be deemed to be associated enterprises:
a) The business of one enterprise is wholly dependent on the know-how, patents, copyrights, etc. of which the other enterprise is the owner
b) The business of one enterprise is wholly dependent on the know-how, patents, copyrights, etc. of which the other enterprise has non exclusive rights
c) Both A and B
d) None of the above
39. Two enterprises shall be deemed to be associated enterprises when –
a) 50% or less of raw materials and consumables required for the manufacturing of goods by one enterprise, are supplied by the other enterprise.
b) At least 80% of raw materials and consumables required for the manufacturing of goods by one enterprise, are supplied by the other enterprise.
c) 90% or more of raw materials and consumables required for the manufacturing of goods by one enterprise, are supplied by the other enterprise
d) None of the above
40. Zogo Inc. (USA) supplied raw material A, worth Rs 170 crores to MEC India during the FY 2017-18. *Both enterprises would be deemed as associated enterprises when Mec India consumed total raw material A of
a) Rs 200 crores or more during the FY 2017-18
b) Rs 340 crores or more during the FY 2017-18
c) Rs 180 crores or more during the FY 2017-18
d) Rs 250 crores or more during the FY 2017-18
CA Final International Taxation MCQs – Transfer Pricing
41. Two enterprises shall be deemed to be associated enterprise when the –
a) The goods manufactured by one enterprise, are sold to the other enterprise.
b) The goods manufactured by one enterprise, are sold to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise.
c) The goods manufactured by one enterprise, are sold to persons specified by the other enterprise, based on price independently negotiated with the other enterprise.
d) Both A and B
42. Two enterprises shall be deemed to be associated enterprise, where
a) one enterprise is controlled by an individual, the other enterprise is also controlled by such individual, or
b) One enterprise is controlled by an Individual and the other enterprise is controlled by relative of such Individual.
c) One enterprise is controlled by an Individual and the other enterprise is jointly controlled by such Individual and his relative.
d) All of the above
43. Two enterprises shall be deemed to be associated enterprise, where
a) one enterprise is controlled by an individual and the other enterprise is controlled by a friend of such Individual.
b) one enterprise is controlled by an individual and the other enterprise is controlled by brother of such Individual.
c) one enterprise is controlled by an individual and the other enterprise is controlled by wife of such Individual.
d) Both B and C
Reasoning: Two enterprises shall be deemed to be Associated Enterprise where one enterprise is controlled by an Individual and the other enterprise is controlled by relative of such Individual. As per Section 2(41), relative in relation to an Individual means the husband, wife, brother or sister or any lineal ascendant or descendant of that individual.
44. Two enterprises shall be deemed to be associated enterprise, where –
a) One enterprise is controlled by a HUF, the other enterprise is controlled by a member of such HUF
b) One enterprise is controlled by a HUF, the other enterprise is controlled jointly by member of HUF and his friend.
c) One enterprise is controlled by a HUF, the other enterprise is controlled jointly by member of HUF and his sister.
d) Both A and C
45. Indian Company and Foreign Company would be deemed to be Associated Enterprises where –
a) HUF controls Indian company and brother of member of HUF also controls such Indian company
b) HUF controls Indian company; member of HUF and his wife jointly control Foreign company.
c) HUF controls Indian company and member of HUF controls Foreign Company
d) Both B and C
46. Indian firm and foreign company would be deemed as associated enterprises when –
a) Foreign company holds 5% interest in such Indian firm
b) Foreign company holds 10% interest in such Indian firm
c) Foreign company holds 11% interest in such Indian firm
d) Both B and C
47. Indian AOP and foreign company would be deemed as associated enterprises when –
a) Foreign company holds 51% interest in such Indian AOP
b) Foreign company holds 50% interest in such Indian AOP
c) Foreign company holds 20% interest in such Indian AOP
d) All of the above
48. A Ltd. (India) and AB international (Mauritius) would be deemed as associated enterprises when –
a) A Ltd.(India) holds 26% non-voting Preference shares in AB International (Mauritius).
b) A Ltd.(India) holds 26% equity shares in AB International (Mauritius).
c) A Ltd.(India) holds 26% debentures in AB International (Mauritius).
d) All of the above
49. G Ltd. (India) holds 30% Equity shares in U Inc. (USA). It also holds 25% Equity shares in XZ International (UK). Who all would be the Associated enterprises in this example?
a) G Ltd. and U Inc.
b) G Ltd. and XZ International
c) U Inc. and XZ International
d) All of the above
Reasoning:
G Ltd. & XZ International are not Associated enterprises, since G Ltd. owns less than 26% voting rights in XZ International.
Further, U Inc. and XZ International are not Associated enterprise as G Ltd. does not hold 26% voting rights in both XZ International and U Inc.
50. Y Ltd. (India) holds 30% Equity shares in Yo Inc. (USA) and 40% Equity shares in Z International (UK). Who all would be the Associated enterprises?
a) Y ltd. and Yo Inc.
b) Y ltd. and Z International
c) Yo Inc. and Z International
d) All of the above
CA Final International Taxation MCQs – Transfer Pricing
51. Section 92A (2) provides that two enterprises shall be deemed to be associated enterprises if, they satisfy any one or more of 13 conditions of being an AE :-
a) For whole of the previous year
b) At the end of the previous year
c) At the beginning of the previous year
d) At any time during the previous year
52. X Ltd. (India) holds 30% equity shares in Z International (Switzerland) as on April 1, 2016. Both would be deemed as associated enterprises even when –
a) Shareholding of X ltd. reduced to 10% in Z International as on March 31, 2017.
b) Shareholding of X ltd. reduced to 20% in Z International as on Nov 30, 2016, which was further increased to 29% as on March 31, 2017.
c) There is no reduction in shareholding of X Ltd.
d) All of the above
53. Transfer pricing provisions are applicable to determine –
a) Cost of international transactions between Associated enterprises.
b) Selling price/purchase price of international transactions between Associated enterprises.
c) Market value of transaction u/s 50C between Associated enterprises.
d) The arm’s length price of international transaction between Associated enterprises.
54. For transfer pricing purposes, “transaction” includes an arrangement, understanding or action in concert, –
a) Which is in writing
b) Which may be oral
c) Which may be in writing or oral
d) None of the above
55. For transfer pricing purposes, “transaction” includes an arrangement, understanding or action in concert, –
a) Which is intended to be enforceable by legal proceedings
b) Which is not intended to be enforceable by legal proceedings
c) Which may or may not be intended to be enforceable by legal proceedings
d) None of the above
56. RT India Private Ltd. has a show room of cars in New Delhi. Due to high demand of cars during Diwali, RT India places an order for certain cars with X Inc. (USA), the overseas parent of RT India. Such arrangement would be deemed as transaction under transfer pricing when –
a) X Inc. agrees to supply the cars to RT India even if there is no formal arrangement for such purpose
b) X Inc. agrees to supply the cars to RT India and there is formal arrangement for such purpose.
c) V Incl. agrees to supply the furniture to RT India irrespective of whether there is formal arrangement/contract or not.
d) All of the above
57. Under transfer pricing, International Transaction “Means”
a) Transactions between two or more Associated Enterprises either or both of whom are non-residents
b) Transactions between three or more Associated Enterprises who are non-residents
c) Transactions between two or more Associated Enterprises who are residents
d) None of the above
58. The International transaction shall be in nature of:
a) Purchase, sale or lease of tangible or intangible property
b) Provision of services or lending or borrowing money; or
c) Any other transaction having a bearing on the profits, income, losses or assets of the enterprises
d) All of the above
59. Which of the following conditions should be satisfied in order to consider a transaction as International transaction under Transfer Pricing regulations :-
a) Transaction should be between Associated enterprises.
b) Either or both of the parties to transaction should be non-residents
c) Transaction should relate to purchase, sale or lease of tangible or intangible property or provisions of services, etc.
d) All of the above
60. Which of the following should be considered as International transaction:
a) Royalty payment made by UB India to its group concern UV India.
b) Payment made by UG (India) to its holding company UG (UK) for installation services.
c) Repayment of buyer’s credit by X (India) to third party Mauritius Bank.
d) None of the above
CA Final International Taxation MCQs – Transfer Pricing
61. Z India issued 10,000 shares at Rs 110 (face value of Rs. 10 each) at a premium of Rs. 100 per share to its holding company, W International. Choose the correct statement:
a) Transfer pricing provisions would be applicable on such transaction when the fair market value of share is Rs 150 per share
b) Transfer pricing provisions would be applicable on such transaction when the fair market value of share is Rs 90 per share
c) Transfer pricing provisions would not be applicable on such transaction irrespective of the market value of shares.
d) None of the above
62. A Ltd. (India), purchases raw material from its parent AB Ltd for Rs. 30 crore during FY 2017-18. (India). Such transaction may be considered as :-
a) International Transaction under Transfer Pricing
b) Specified Domestic Transaction
c) Any of the above
d) None of the above
63. D Ltd. (India) imports goods from E International (Switzerland). D Ltd holds 10% shares in E International. Such transaction :-
a) Would be considered as International transaction
b) Would be considered as Specified domestic transaction
c) A or B
d) None of the above
64. C Ltd. (India) imports 10,000 units of goods from its Associated enterprise C International (Germany) at USD 50 per unit. Such transaction :-
a) Would not be considered as international transaction, where the Arm’s length price of such transaction is USD 50 per unit
b) Would be considered as international transaction when arm’s length price of such transaction is USD 40 per unit.
c) Would be considered as international transaction irrespective of the Arm’s length price of such transaction.
d) None of the above
65. A ltd. (India) is the subsidiary of AB International (UK). A Ltd. import certain goods from B International (Australia), independent third party. There exists a prior agreement between B International and AB International (UK) for import of such goods. Such transaction of import from third party :-
a) Shall not be deemed to be an international transaction as both parties (i.e. A ltd. and AB International) are not associated enterprises.
b) Shall be deemed to be an international transaction even if transaction is made with Independent third party.
c) Any of the above
d) None of the above
66. GO Ltd. (India) is the subsidiary of GO International (UK). Go Ltd. imports goods from B ltd. (India), independent third party. There exists a prior agreement between Go International (UK) and B ltd. (India) for import of such goods. Such transaction of import from independent third party :-
a) Shall not be deemed to be an international transaction as both parties (i.e. Go Ltd. and B Ltd.(India)) are not associated enterprises.
b) Shall not be deemed to be an international transaction as neither GO ltd. nor B ltd. is foreign company.
c) Shall be deemed to be an international transaction.
d) None of the above
67. “Arm’s length price” means a price which is applied or proposed to be applied in a transaction between persons (other than associated enterprises) in …………….
a) Controlled conditions
b) Uncontrolled conditions
c) Market conditions
d) None of the above
68. Provision relating to arm’s length price are not applicable where such application results in……………………. for tax purposes in India.
a) Increase in losses
b) Reduction of taxable income
c) Reduction of expense
d) Any of the above
69. Hozo India Ltd. sold ‘Product A’ to Mozo International (UK). The arm’s length price of product A can be ascertained under CUP Method, where : –
a) Hozo India sold similar goods to unrelated party, YO International (UK).
b) Unrelated enterprise, D India sold similar goods to MO International (UK), which is not a related party of D India
c) Hozo India sold similar goods to another related party, ZOZO International (UK).
d) Both A and B
70. AB India purchases product X from its subsidiary AB International (UK). Select internal CUP from the following transactions :-
a) AB India purchases similar product from its another subsidiary ABB Inc. (UK)
b) AB India purchases similar product from unrelated party BC International (UK)
c) BC India purchases similar product from unrelated party RC International (UK)
d) None of the above
CA Final International Taxation MCQs – Transfer Pricing
71. AB India purchases product X from its subsidiary AB International (UK). Select external CUP from the following transactions :-
a) AB India purchases similar product from its another subsidiary ABB Inc. (UK)
b) AB India purchases similar product from unrelated party BC International (UK)
c) BC India purchases similar product from unrelated party RC International (UK)
d) None of the above
72. Associated Enterprise 1 sold coffee beans to Associated Enterprise 2. Associated Enterprise 1 did not sell similar coffee beans to third party (Non-Associated Enterprise). Thus, sale of coffee beans of similar type, quality and volume between non- Associated Enterprise 1 and non- Associated Enterprise 2 would be ………. CUP.
a) External CUP
b) Internal CUP
c) Any of the above
d) None of the above
73. While calculating arm’s length price under CUP method :-
a) Use of external CUP is preferred over internal CUP
b) Only internal CUP can be used
c) Use of Internal CUP is preferred over external CUP
d) None of the above
74. After calculating CUP on basis of internal or external CUP adjust the price so arrived at for functional differences between the international transaction under review, and the comparable uncontrolled transactions :-
a) Which could materially affect the price in the open market.
b) Which could affect price in the open market, even if immaterial
c) Which does not affect price in the open market
d) None of the above
75. Associated Enterprise 1 sold Product B to Associated Enterprise 2 at Rs 5,00,000. Associated Enterprise 1 sold Product B of similar type, quality and quantity to third party (Non- Associated Enterprise) at Rs 4,00,000. The Arm’s Length Price of such transaction between Associated Enterprises would be –
a) Rs 5,00,000
b) Rs 4,00,000
c) Either A or B
d) None of the above
76. Associated Enterprise 1 sold Product B to Associated Enterprise 2 at Rs 3,00,000. Associated Enterprise 1 sold Product B of similar type, quality and quantity to third party (Non- Associated Enterprise) at Rs 6,00,000. The Arm’s Length Price of such transaction between Associated Enterprises would be –
a) Rs 3,00,000
b) Rs 6,00,000
c) Either A or B
d) None of the above
77. Associated Enterprise 1 sold Product C to Associated Enterprise 2 at Rs 5,00,000. Associated Enterprise 1 sold Product C of similar type, quality and quantity to third party (Non- Associated Enterprise) at Rs 5,50,000.
Independent third party (i.e., Non- Associated Enterprise) sold Product C of similar type, quality and quantity to third party (Non-AE) at Rs 6,00,000. In this case the Arm’s length Price under CUP method would be :-
a) 5,00,000.
b) 5,50,000.
c) 6,00,000.
d) None of the above
78. Under Resale Price Method, ……………….. derived by an enterprise, from the resale price of such property or services in comparable uncontrolled transactions, should be reduced from the price in controlled transaction :-
a) Normal Net Profit Margin
b) Profit Margin
c) Normal Gross Profit Margin
d) None of the above
79. In Resale Price Method, impact of Functional and other differences, which could materially affect the amount of ……………….. in the open market should be considered :-
a) Gross profit margin
b) Net Profit Margin
c) Profit Margin
d) None of the above
80. Under Resale Price Method, the resale price margin earned by re-seller in comparable uncontrolled transactions would be considered as …………. Comparable –
a) External
b) Suitable
c) Internal
d) None of the above
CA Final International Taxation MCQs – Transfer Pricing
81. The resale price margin earned by an independent enterprise, in comparable uncontrolled transactions would be considered as …………. Comparable
a) External
b) Suitable
c) Internal
d) None of the above
82. Under Cost plus Method, Arms Length Price is determined by adding appropriate gross profit margin to the Associated Enterprise’s …….. of producing goods/ providing services.
a) Selling price
b) Resale price
c) Cost
d) None of the above
83. As per the Organisation for Economic Co-operation and Development (OECD), Cost Plus Method is applicable when :-
a) Semi-finished goods are sold between Associated enterprises,
b) There is contract manufacturing
c) Any other transfer pricing method is not applicable
d) Both A and B
84. Under the Cost-Plus Method, ……………………..in a tested party transaction is determined, and then normal gross profit mark-up would be added to such costs, arising from the transfer or provision of the same or similar goods or services to determine the Arm’s Length Price
a) Direct costs of production
b) Indirect costs of production
c) Cost of sales
d) Both A and B
85. Profit-based transfer pricing methods, recognised by the TP legislation, as satisfying the arm’s length principle are : –
a) Profit Split Method;
b) Transactional Net margin method.
c) CUP Method
d) Both A and B
86. Profit Split Method is typically applicable :-
a) In international transactions that are so interrelated that they cannot be evaluated separately to determine Arm’s Length Price of any one transaction
b) When CUP Method is not applicable
c) When Resale Price Method is not applicable
d) None of the above
87. The allocation of profit or loss under the Profit Split Method must be made in accordance with one of the following allocation methods :-
a) Comparable Profit Split Method
b) Uncontrolled Profit Split Method
c) Residual Profit Split Method
d) Both A and C
88. A comparable profit split is derived, from the …………………..of uncontrolled taxpayers whose transactions and activities are similar to those of the controlled taxpayers.
a) Operating Profit
b) Combined Operating Profit
c) Comparable Uncontrolled Price
d) None of the above
89. Under Transaction Net Margin Method, the Arm’s Length Price is arrived at by comparing ………………. of the “tested” party with the ……………….of an uncontrolled party engaged in comparable transactions, with an appropriate base.
a) Uncontrolled Price
b) Resale Price
c) Operating Profit
d) Combined Operating Profit
90. CBDT has prescribed the ‘Other Method’ by inserting a new rule 10AB to the Income-Tax Rules. For determination of arm’s length price in relation to international transaction, the Other Method shall be :-
a) Any method which takes into account the price which has been charged or paid, for the same or similar uncontrolled transaction, between Non-Associated enterprises, under similar circumstances
b) Resale Price Method
c) Transaction Net Margin Method
d) Profit Split Method
CA Final International Taxation MCQs – Transfer Pricing
91. There are various participants in an international transaction. In order to find comparables for a transaction, ……………………..is selected as tested party.
a) Assessee, resident in India
b) Foreign Associated Enterprise
c) One of the participant
d) None of the above
92. Under Transfer Pricing any party which is chosen as Tested Party from two parties, shall be : –
a) “Least complex”
b) Does not own valuable intangible property
c) Both A and B
d) None of the above
93. Under Transfer Pricing, Profit Level Indicator (PLI) is :-
a) Ratio that measure relationships between profits and cost incurred or resources employed.
b) Break-even point
c) A and B
d) None of the above
94. The most appropriate method under the transfer pricing shall be: –
a) CUP Method
b) Resale Price Method
c) Transaction Net Margin Method
d) The Method which is best suited to facts and circumstances of each particular international transaction, and which provides the most reliable measure of an arm’s length price
95. Which factors should not be taken into consideration in determining the most appropriate method?
a) Nature and class of transaction
b) Class of Associated Enterprise
c) Availability, coverage and reliability of data
d) Country of Associated Enterprise entering into international transaction
96. In case of royalty payments between Associated Enterprises, which of the following methods are generally used under transfer pricing?
a) CUP Method
b) Transaction Net Margin Method
c) Resale Price Method
d) Other Method
97. In case of sale of semi-finished goods between Associated Enterprises, which of the following methods are generally used under transfer pricing?
a) CUP Method
b) Transaction Net Margin Method
c) Resale Price Method
d) Cost Plus Method
98. Where the most appropriate method for determination of ALP of an international transaction entered into on or after 1.4.2014 is Resale price method, or Cost plus method, or Transactional net margin method, then, the data to be used for analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to –
a) Current year
b) Financial year immediately preceding the current year, if the data relating to the current year is not available at the time of furnishing the return of income.
c) Preceding three years
d) Both A or B
99. When the price determined by the application of Most Appropriate Method is a single price, then …………………. would apply :-
a) Arithmetic Mean
b) Range
c) Mean
d) None of the above
100. DD India Ltd. enters into certain transaction from DDI International (UK) of Rs 10,000. It determines arm’s length price of such transaction as Rs 20,000 and Rs 15,000 under CUP Method. Such calculation is made by using four comparables. The arms’ length price of such transaction would be –
a) Rs 20,000
b) Rs 15,000
c) Rs 10,000
d) Rs 17,250
CA Final International Taxation MCQs – Transfer Pricing
101. Where more than one price is determined by use of most appropriate method, and the range concept is not applicable then, Arm’s Length price shall be taken to be……………
a) Arithmetic Mean of such prices
b) Median
c) +-3% variation from actual transaction price
d) None of the above
102. Actual transaction price would be taken as Arm’s Length Price, where variation between the Arm’s length price (determined by use of Arithmetic Mean), and actual transaction price does not exceed –
a) 1% of actual transaction price – In case of whole sale trading
b) 3% of actual transaction price – In case of other business
c) 2% of actual transaction price – In case of whole sale trading/other business
d) Both A and B
103. AE India sold product A to AE Incl. (USA) at Rs. 2,00,000 (Equivalent to USD 3077). Sale price of product A determined under CUP method are Rs. 1,50,000, Rs. 1,00,000, Rs. 3,00,000, Rs. 50,000 and Rs. 4,00,000.
Determine the Arm’s Length Price when AE India is not a wholesale trader?
a) Rs 2,00,000
b) Rs 1,45,500
c) Rs 1,54,500
d) None of the above
104. Range concept is applicable when : –
a) More than one price are determined by use of Most Appropriate Method and Transaction is undertaken on or after April 1, 2014
b) Arm’s length price is determined by use of Transactional Net Profit Method (TNMM), or Comparable uncontrolled price Method (CUP Method), or Cost Plus Method (CPM), or Resale Price Method (RPM).
c) Six or more comparables are available in the dataset
d) All of the above
105. Range concept is not applicable when ……………….. is used to determine the Arm’s length price.
a) Profit Split Method
b) Transaction Net Margin Method
c) Other method (given under Rule 10AB)
d) A or C
106. Range concept is applicable when ……………….. method is used to determine the Arm’s length price.
a) CUP Method
b) Transaction Net Margin Method
c) Other method (given under Rule 10AB)
d) A and B
107. Under Transfer Pricing, actual transaction price or profit margin would be accepted if it falls in the range of :-
a) 35th-65th percentile of the given dataset
b) 65th-75th percentile of the given dataset
c) 35th-45th percentile of the give dataset
d) 15th-35th percentile of the given dataset
108. Under Range Concept, …………………..of dataset would be computed and taken as arm’s length price if, actual transaction price or profit margin is outside the range of 35th-65th percentile
a) Arithmetic Mean
b) Median
c) Mode
d) None of the above
109. First step to determine range under transfer pricing to arrange dataset of Prices or profit margins in :-
a) Ascending order
b) Descending order
c) Either A or B
d) None of the above
110. In the given case, dataset of 7 prices arranged in Ascending order is as under:
In this case, the Range would be :-
a) 42,000-43,000
b) 43,000-44,000
c) 44,000-46,000
d) 47,000-48,00
CA Final International Taxation MCQs – Transfer Pricing
111. In which of the transfer pricing method, range concept is not applicable :-
a) Cost Plus Method
b) CUP Method
c) TNMM
d) Profit Split Method
112. When a single price is determined by use of any transfer pricing method:-
a) Range is applicable
b) Arithmetic Mean is applicable
c) A or B
d) None of the above
113. Arithmetic Mean is applicable when : –
a) Transactions were undertaken before April 1, 2014
b) Profit Split Method is the most appropriate method
c) Other Method (Rule 10AB) is applicable
d) Either of the above is applicable
114. When more than one price is determined for international transaction undertaken after March 1, 2014 : –
a) Range is applicable
b) Arithmetic Mean is applicable
c) A or B
d) None of the above
115. Functions, Assets and Risk (‘FAR’) analysis is the method of finding and organizing facts about the business of a MNE in terms of –
a) the functions performed;
b) assets used
c) risks assumed by business
d) All of the above
116. A manufacturer of software can be selected as comparable under transfer pricing for :-
a) A BPO service provider,
b) KPO Service Provider
c) Trader of software
d) None of the above
117. Components of FAR analysis are :-
a) Functions performed, Asset employed, risk assumed by business
b) Fixed Assets, Asset employed, Ratio of Gross Profit to Asset employed
c) Functions performed, Analysis of comparables, Risk assumed
d) None of the above
118. Associated Enterprise undertaking intra group transactions (specified) are required to keep and maintain :-
a) Entity related information and documents
b) Price related information and documents
c) Transaction related information and documents
d) All of the above
119. The assessee is not obliged to maintain the information and documents for international transaction under transfer pricing, where the aggregate value of international transactions is :-
a) Rs 20 crore or less
b) Rs 5 crore or less
c) 1 crore or less
d) Rs 50 lakhs or less
120. AV India Ltd. is claiming profit linked deduction u/s 80-IC and it has obtained certain services amounting to Rs 5 crores with its other Indian group concern during the FY 2017-18. In this case, AV India is :-
a) Required to maintain documentation under Rule 10D as aggregate value of transaction is more than Rs 1 crore
b) Not required to maintain documentation under Rule 10D as it is a specified domestic transaction
c) Not required to maintain documentation under Rule 10D as provisions of specified domestic transactions are not applicable
d) None of the above
CA Final International Taxation MCQs – Transfer Pricing
121. Every person who enters into an ……………………….. during a previous year is required to obtain a report from a Chartered Accountant, and furnish such report on or before 30th November of the relevant assessment year in Form No.3CEB.
a) International transaction above Rs 1 crore
b) International transaction of any amount
c) Both A or B
d) None of the above
122. For under-reported income, penalty is leviable u/s 270A @…….. of tax payable.
a) 100%
b) 300%
c) 50%
d) 200%
123. Indian company imports raw material from its foreign subsidiary at Rs. 5 lakhs during the P.Y. 2017-18. ICO has maintained documents for such international transaction as per Section 92D and included such transactions in income-tax return and Form No.3CEB at Rs. 5 lakhs. During assessment proceedings, the TPO determined the ALP of such transaction at Rs. 3 lakhs. Amount of penalty to be levied on Indian Company for underreporting of income u/s 270A would be :-
a) 100%
b) 300%
c) 50%
d) Nil
124. Failure to report any …………………………to which the provisions of transfer pricing [i.e., Chapter X] applies would constitute ‘misreporting of income’ u/s 270A(9), and it would attract penalty @ 200% of tax payable due to misreporting of income.
a) International transaction, or
b) Deemed international transaction [as referred to in Section 92B(2)]
c) Specified domestic transaction
d) All of the above
125. Indian company provided consultancy services to its foreign parent but failed to report such transaction in Form 3CEB and income-tax return. During assessment, the AO identified such transaction and made additions of Rs. 10 lakhs in accordance with ALP determined by TPO. Determine the penalty leviable on ICO assuming a tax rate (including surcharge and cess) of 30% u/s 270A ?
a) Rs 6,00,000
b) Rs 3,09,000
c) Rs 9,27,000
d) Rs 1,54,500
126. Failure to furnish transfer pricing report in Form 3CEB would attract penalty u/s 271BA of :-
a) Rs 1,00000
b) Rs 5,00,000
c) Rs 10,00,000
d) None of the above
127. Transfer Pricing information and documents are required to be kept and maintained for a period of ………………. from the end of relevant AY :-
a) 5 years
b) 10 years
c) 8 years
d) None of the above
128. Failure to keep and maintain information and documentation as required by Section 92D would attract penalty u/s 271AA for :-
a) @ 50% of the value of international transaction entered into by a taxpayer
b) @ 2% of the value of international transaction entered into by a taxpayer for which documents are not kept
c) @ 2% of the value of all transactions entered into by a taxpayer
d) None of the above
129. Penalty u/s 271AA @ 2% shall be computed on …………………of international transaction. :-
a) Actual Price
b) Arm’s Length Price
c) Fair Value
d) None of the above
130. If any person who has entered into an international transaction fails to furnish any such information or document as required by Assessing Officer or Commissioner (Appeals) within a period of ………..from the date of receipt of a notice, then such person shall be liable to a penalty up to 2% of the value of international transactions or specified domestic transaction.
a) 60 days
b) 30 days
c) 90 days
d) None of the above
CA Final International Taxation MCQs – Transfer Pricing
131. The key objectives of the Country by Country Reporting are: –
a) To articulate consistent transfer pricing position, across the globe.
b) To provide tax administration with useful information to assess TP risk in given cases.
c) To determine Arm’s Length Price of International Transaction
d) Both A and B
132. International group shall maintain information and documents in Master file when Consolidated group revenue of the international group is (as reflected in Consolidated Financial Statements of the international group) is
a) More than Rs 500 crores
b) Less than 2500 crores
c) Less than Rs 500 crores
d) None of the above
133. Monetary threshold for maintaining a master file is :-
a) Consolidated group revenue of the international group is less than Rs 500 crores and aggregate value of international transaction is more than Rs 50 crores.
b) Consolidated group revenue of the international group is less than Rs 500 crores and aggregate value of international transaction is more than Rs 10 crores in respect of purchase, sale, transfer, lease or use of intangible property.
c) Consolidated group revenue of the international group is more than Rs 500 crores and aggregate value of international transaction is more than Rs 50 crores.
d) None of the above
134. Master file shall be filed in Form 3CEAA. Part A of Form 3CEAA needs to be filed by constituent entity of international group when Consolidated group revenue of the international group is
a) More than Rs 500 crores and aggregate value of international transaction is more than Rs 50 crores.
b) More than Rs 500 crores and aggregate value of international transaction is more than Rs 10 crores in respect of purchase, sale, transfer, lease or use of intangible property.
c) More than Rs 500 crores or aggregate value of international transaction is more than Rs 50 crores.
d) None of the above
135. Master file shall be filed in Form 3CEAA. Part B of Form 3CEAA needs to be filed by constituent entity of international group when :-
a) Consolidated group revenue of the international group is more than Rs 500 crores and aggregate value of international transaction is more than Rs 50 crores.
b) Consolidated group revenue of the international group is more than Rs 500 crores and aggregate value of international transaction is more than Rs 10 crores in respect of purchase, sale, transfer, lease or use of intangible property.
c) Both A and B.
d) None of the above
136. Country-by-country report is required to be filed when Consolidated group revenue of the international group is –
a) More than Rs 5500 crores
b) More than Rs 500 crores
c) More than Rs 50 crores
d) None of the above
137. X India Ltd. is a resident constituent entity of an International group. Its parent entity, Y International is resident of Country Y. Y international furnished CbC report in Country Y and Country Y shared the details with Indian tax authorities. In this case, X India Ltd. –
a) Is required to file CbC report in India if the consolidated group revenue of international group is more than Rs 5500 crores
b) Is required to file CbC report in India if the consolidated group revenue of international group is more than Rs 500 crores
c) Is not required to file CbC report at all
d) None of the above
138. A India Ltd. is a resident constituent entity of an International group. Its parent entity, B International is resident of Country C. A India Ltd. is required to furnish CbC report if :-
a) India does not have an arrangement for exchange of the CbC report with country C.
b) Country C is not exchanging information with India, even though there is an agreement (i.e. existence of systematic failure)
c) Either A or B
d) None of the above
139. A India Ltd. is a resident constituent entity of an International group. Its parent entity, B International is resident of Country C. A India Ltd. is required to furnish CbC report if :-
a) B international is resident in a country with which India does not have an arrangement for exchange of the CbC report
b) Country C is not exchanging information with India even though there is an agreement (i.e. existence of systematic failure)
c) Both A and B
d) None of the above
140. Entity D is required to furnish report under CbC provisions but it filed such report after 20 days from the due date. The amount of penalty shall be :-
a) Rs 1,00,000
b) Rs 3,00,000
c) Rs 10,00,000
d) None of the above
CA Final International Taxation MCQs – Transfer Pricing
141. Entity E is required to furnish report under CbC provisions but it filed such report after 25 days from the due date. The amount of penalty shall be :-
a) Rs 1,00,000
b) Rs 1,25,000
c) Rs 3,75,000
d) No penalty as there was reasonable cause for such failure
142. Entity F is required to furnish report under CbC provisions but it filed such report after 35 days from the due date. The amount of penalty shall be :-
a) Rs 17,50,000
b) Rs 2,25,000
c) Rs 1,75,000
d) None of the above
143. Entity F is required to furnish report under CbC provisions but it filed such report after 24 days from the due date. The amount of penalty per day shall be :-
a) Rs 5,000
b) Rs 15,000
c) Rs 50,000
d) None of the above
144. Entity F is required to furnish report under CbC provisions but it filed such report after 40 days from the due date. The amount of penalty per day shall be :-
a) Rs 5,000
b) Rs 15,000
c) Rs 50,000
d) None of the above
145. An Entity is required to furnish report under CbC provisions but it failed to file such report even after service of penalty order. The amount of penalty per day shall be :-
a) Rs 5,000
b) Rs 15,000
c) Rs 50,000
d) None of the above
146. In case information called by prescribed authority for determination of accuracy of CbC report is not submitted within the time specified in the notice, reporting entity shall be penalized by …………..per day after expiry of the period specified in such notice.
a) Rs 5,000
b) Rs 15,000
c) Rs 50,000
d) None of the above
147. Information, called where any by prescribed authority for determination of accuracy of CbC report is not submitted. Further, for any default that continues even after service of order levying penalty, for non-furnishing of information penalty for default beyond date of service of penalty order shall be
a) Rs 5,000 per day
b) Rs 15,000 per day
c) Rs 50,000 per day
d) None of the above
148. GB India Ltd has provided inaccurate information in the CbC report. Penalty for furnishing inaccurate information shall be would be :-
a) Rs 1,00,000
b) Rs 15,000 per day
c) Rs 50,000 per day
d) Rs 5,00,000
149. If an entity has provided any inaccurate information in the CbC report, penalty would be levied if the :-
a) Entity has knowledge of the inaccuracy but does not inform the prescribed authority about error.
b) The entity furnishes inaccurate information or document in response to notice of the prescribed authority.
c) The entity discovers the inaccuracy after the report is furnished and fails to inform the prescribed authority and furnish correct report within a period of 15 days of such discovery
d) All of the above
150. For applicability of CbC provisions, the definition of “international group” means any group that includes:-
a) Two or more enterprises which are resident of different countries or territories
b) Two or more enterprises which are resident of same country or territory
c) An enterprise, being a resident of one country or territory, which carries on any business through a permanent establishment in other countries or territories
d) Both A and C
CA Final International Taxation MCQs – Transfer Pricing MCQs Answers
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