Section 1 - Transfer Pricing
- EVOLUTION OF TRANSFER PRICING IN INDIA – TRANSFER PRICING CA FINAL
- WHAT IS TRANSFER PRICING – CA Final Direct and International Tax
- EVOLUTION OF TRANSFER PRICING IN INDIA [PRE-2001 ERA] – SECTION 92 – TRANSFER PRICING CA FINAL
- MEANING OF TRANSFER PRICE
- TRANSFER PRICING METHODS
- Comparable Uncontrolled Price Method
- EVOLUTION OF TRANSFER PRICING IN INDIA [PRE-2001 ERA] – REPLACEMENT OF EXISTING LAW
- COMPUTATION OF INCOME HAVING REGARD TO THE ALP – SECTION 92 – APPLICABILITY OF ARM’S LENGTH PRINCIPLE
- COMPUTATION OF INCOME HAVING REGARD TO THE ALP – SECTION 92 – BASE EROSION CONCEPT
- ASSOCIATED ENTERPRISES – SECTION 92A (1)
- INTERNATIONAL TRANSACTION [SECTION 92B]
- ARMS’ LENGTH PRINCIPLE
- COMPUTATION OF ARM’S LENGTH PRICE [SECTION 92C]
- SELECTION OF TESTED PARTY
- SELECTION OF PROFIT LEVEL INDICATOR
- SELECTION OF MOST APPROPRIATE METHOD – RULE 10C
- DATA TO BE USED FOR ANALYZING COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION
- ARITHMETIC MEAN – WHEN MORE THAN ONE PRICE IS DETERMINED
- APPLICABILITY OF RANGE CONCEPT – WHEN MORE THAN ONE PRICE IS DETERMINED
- FUNCTIONS, ASSETS AND RISK (FAR) ANALYSIS
- DOCUMENTATIONS AND COMPLIANCES – DOCUMENTATION REQUIREMENT UNDER THE INCOME-TAX ACT, 1961
- FUNCTIONAL ANALYSIS
- ECONOMIC ANALYSIS
- PENALTY FOR UNDER-REPORTING OF INCOME – SECTION 270A
- PENALTY FOR MISREPORTING OF INCOME – SECTION 270A
- PENALTY FOR FAILURE TO KEEP AND MAINTAIN INFORMATION AND DOCUMENTATION – SECTION 271AA
- PENALTY FOR FAILURE TO FURNISH INFORMATION OR DOCUMENT U/S 92D – SECTION 271G
- COUNTRY BY COUNTRY REPORTING
- Domestic Transfer Pricing
- SAFE HARBOUR RULES FOR INTERNATIONAL TRANSACTION
- TRANSFER PRICING ASSESSMENT procedure in India
- APPEAL PROCEDURE
- POWER OF ASSESSING OFFICER TO DETERMINE THE ARM’S LENGTH PRICE
- REFERENCE TO TRANSFER PRICING OFFICER [SECTION 92CA]
- RECTIFICATION OF TPO ORDER
- POWERS OF TPO
- SECONDARY ADJUSTMENT – SECTION 92CE
- DISPUTE RESOLUTION MECHANISM UNDER TRANSFER PRICING
- ADVANCE PRICING AGREEMENT
- MUTUAL AGREEMENT PROCEDURE
- MISCELLANEOUS TRANSFER PRICING PROVISIONS
Section 2 - Non-Resident Taxation
- CHARGE OF INCOME TAX AND RESIDENTIAL STATUS
- RESIDENTIAL STATUS OF A COMPANY
- SCOPE OF TOTAL INCOME AND INCOME DEEMED TO BE RECEIVED IN INDIA AND ACCRUE OR ARISE IN INDIA
- TAXABILITY OF OFFSHORE FUNDS AND INCOME THROUGH OR FROM ANY PROPERTY, ASSET OR SOURCE OF INCOME IN INDIA
- SALARY PAYABLE BY GOVERNMENT FOR SERVICES RENDERED OVERSEAS AND DIVIDEND PAID BY AN INDIAN COMPANY OUTSIDE INDIA
- EXEMPT INCOME OF NON-RESIDENTS
- INTEREST AND ROYALTY AND FEES FOR TECHNICAL SERVICES
- PRESUMPTIVE TAXATION FOR NON-RESIDENTS – introduction
- Capital Gains tax provisions – CA Final Direct and International Tax Notes
- WITHHOLDING TAX FROM PAYMENTS TO NON – RESIDENTS
Section 4 - Double Taxation Relief
- CONCEPT OF DOUBLE TAXATION AND WHY IT ARISES AND TYPES OF DOUBLE TAXATION RELIEF
- COUNTRIES WITH WHICH NO AGREEMENT EXISTS UNILATERAL AGREEMENTS – SECTION 91
- TREATY PROVISION TO OVERRIDE INCOME TAX ACT AND MODE OF COMPUTATION OF INCOME OF NON-RESIDENTS
- Foreign Tax Credit in India – Rule 128 of the Income Tax Rules 1962 – CA Final International Tax Notes
Section 5 - Black Money
- KEY FEATURES OF THE BLACK MONEY ACT
- APPLICABILITY AND COVERAGE OF THE BLACK MONEY ACT – SECTION 1
- BASIS OF CHARGE – SECTION 3
- DEFINITION OF ASSESSEE – SECTION 2(2)
- APPLICABILITY OF BLACK MONEY ACT TO PERSONS RESIDENT IN INDIA
- DEFINITION OF UNDISCLOSED ASSET LOCATED OUTSIDE INDIA – SECTION 2(11)
- RELEVANT PREVIOUS YEAR FOR CHARGEABILITY TO TAX – UNDISCLOSED ASSET LOCATED OUTSIDE INDIA – SECTION 3
- VALUATION OF AN UNDISCLOSED ASSET LOCATED OUTSIDE INDIA – SECTION 3(2)
- TRANSFER OF ASSETS BEFORE VALUATION DATE
- VALUATION IN CASE OF ACQUISITION OF ASSET OUT OF CONSIDERATION OF OLD ASSET OR BANK ACCOUNT – RULE 3(3)
- MEANING OF ESTABLISHED SECURITIES MARKET – EXPLANATION 1 TO RULE 3
- MEANINGFUL ANNUAL VALUE OF SHARES TRADED ON THE EXCHANGE – EXPLANATION 1 TO RULE 3
- MEANING OF QUOTED SHARE OR SECURITY – EXPLANATION 1 TO RULE 3
- MEANING OF UNQUOTED SHARE AND SECURITY – EXPLANATION 1 TO RULE 3
- SCOPE OF TOTAL UNDISCLOSED FOREIGN INCOME AND ASSET – SECTION 4(1)
- VARIATION MADE IN FOREIGN INCOME DURING ASSESSMENT OR REASSESSMENT- SECTION 4(2)
- NON-INCLUSION OF UNDISCLOSED FOREIGN INCOME AND ASSET IN INCOME COMPUTED UNDER INCOME-TAX ACT- SECTION 4(3)
- NO DISALLOWANCE AND SET-OFF FOR COMPUTATION OF TOTAL UNDISCLOSED FOREIGN INCOME AND ASSET – SECTION 5
- DEDUCTION FROM VALUE OF UNDISCLOSED ASSET OUTSIDE INDIA
- DEDUCTION FROM VALUE OF IMMOVABLE PROPERTY OUTSIDE INDIA
- TAX AUTHORITIES UNDER THE BLACK MONEY ACT – SECTION 6
- CHANGE OF TAX AUTHORITY – SECTION 7
- POWERS OF TAX AUTHORITY
- PROCEEDINGS BEFORE TAX AUTHORITIES TO BE JUDICIAL PROCEEDINGS – SECTION 9(1)
- ASSESSMENT OF FOREIGN INCOME AND ASSETS – SECTION 10
- TIME LIMIT FOR COMPLETION OF ASSESSMENT AND REASSESSMENT – SECTION 11(1)/(2)
- NON-APPLICABILITY OF THE 2-YEAR TIME LIMIT FOR COMPLETION OF ASSESSMENT- SECTION 11(3)
- EXCLUSIONS IN COMPUTING LIMITATION PERIOD OF ASSESSMENT/REASSESSMENT – EXPLANATION 1 TO SECTION 11
- RECTIFICATION OF MISTAKE – SECTION 12
- NOTICE OF DEMAND – SECTION 13
- DIRECT ASSESSMENT OR RECOVERY NOT BARRED – [SECTION 14]
- APPEALS TO COMMISSIONER (APPEALS) – SECTION 15
- APPEAL TO APPELLATE TRIBUNAL – SECTION 18
- APPEAL TO APPELLATE TRIBUNAL – SECTION 18
- APPEAL TO HIGH COURT – SECTION 19
- APPEAL TO SUPREME COURT – SECTION 21
- REVISION OF ORDERS PREJUDICIAL TO REVENUE – SECTION 23
- REVISION OF OTHER ORDERS – SECTION 24
- PAYMENT OF TAX DURING PENDING APPEAL
- RECOVERY OF TAX DUES BY ASSESSING OFFICER -SECTION 30
- RECOVERY OF TAX DUES BY TAX RECOVERY OFFICER – SECTION 31
- MODES OF RECOVERY OF TAX DUES – SECTION 32
- TAX RECOVERY OFFICER BY WHOM RECOVERY OF TAX DUES IS TO BE EFFECTED – SECTION 33
- RECOVERY OF TAX DUES IN CASE OF A COMPANY IN LIQUIDATION – SECTION 34
- LIABILITY OF MANAGER OF A COMPANY – SECTION 35
- JOINT AND SEVERAL LIABILITY OF PARTICIPANTS -SECTION 36
- RECOVERY THROUGH STATE GOVERNMENT- SECTION 37
- RECOVERY OF TAX DUES IN PURSUANCE OF DTAA OR TAX INFORMATION EXCHANGE AGREEMENT- SECTION 38
- RECOVERY BY SUIT OR UNDER OTHER LAW NOT AFFECTED – SECTION 39
- INTEREST FOR DEFAULT IN FURNISHING RETURN AND PAYMENT OR DEFERMENT OF ADVANCE TAX – SECTION 40
- PENALTY IN RELATION TO UNDISCLOSED FOREIGN INCOME AND ASSET – SECTION 41
- PENALTY FOR FAILURE TO FURNISH RETURN FOR FOREIGN INCOME AND ASSET – SECTION 42
- PENALTY FOR FAILURE TO FURNISH INFORMATION OF FOREIGN ASSET OR FOREIGN INCOME IN RETURN OF INCOME – SECTION 43
- DETERMINATION OF VALUE OF FOREIGN BANK ACCOUNT IN INR – EXPLANATION TO SECTION 42
- PENALTY FOR DEFAULT IN PAYMENT OF TAX ARREAR -SECTIONS 44
- PENALTY FOR OTHER DEFAULTS – SECTION 45
- PROCEDURE FOR IMPOSING PENALTY – SECTION 46
- PRIOR APPROVAL OF JOINT COMMISSIONER FOR IMPOSING PENALTY – SECTION 46
- BAR OF LIMITATION FOR IMPOSING PENALTY – SECTION 47
- OFFENCES AND PROSECUTION – CHAPTER V
- AGREEMENT WITH FOREIGN COUNTRIES OR SPECIFIED TERRITORIES – SECTION 73
- MODES OF SERVING NOTICE – SECTION 74
- ADDRESS FOR COMMUNICATION OF NOTICE BY POST OR APPROVED COURIER SERVICE – SECTION 74 READ WITH RULE 14
- E-MAIL ADDRESS FOR COMMUNICATION OF NOTICE – SECTION 74 READ WITH RULE 14
- AUTHENTICATION OF NOTICES AND OTHER DOCUMENTS – SECTION 75
- NOTICE DEEMED TO BE VALID IN CERTAIN CIRCUMSTANCES – SECTION 76
- APPEARANCE BY APPROVED VALUER IN CERTAIN MATTERS OR AUTHORIZED REPRESENTATIVE – SECTIONS 77 & 78
- MEANING OF AUTHORISED REPRESENTATIVE – SECTION 78
- ROUNDING OFF OF INCOME, VALUE OF ASSET AND TAX – SECTION 79
- CONGNIZANCE OF OFFENCE – SECTION 80
- ASSESSMENT NOT TO BE INVALID ON CERTAIN GROUNDS – SECTION 81
- BAR OF SUITS IN CIVIL COURTS – SECTION 82
- INCOME-TAX PAPERS TO BE AVAILABLE FOR THE PURPOSES OF THE BLACK MONEY ACT – SECTION 83
- APPLICATION OF PROVISIONS OF THE INCOME-TAX ACT – SECTION 84
- AMENDMENT OF PREVENTION OF MONEY-LAUNDERING ACT, 2002 – SECTION 88
Section 6 - Overview of Double Tax Convention
Section 7 - Application and interpretation of tax treaties
- ORIGINATION OF INTERNATIONAL TAX LAW AND DOUBLE TAXATION AND CONNECTING FACTORS
- DEFINITION OF TREATY , DOUBLE TAXATION AVOIDANCE AGREEMENT
- DIRECTIVE PRINCIPLES FOR INTERNATIONAL AGREEMENTS UNDER INDIAN CONSTITUTION AND ROLE OF VIENNA CONVENTION IN APPLICATION AND INTERPRETATION OF TAX TREATIES
- INDIAN JUDICIARY ON PRINCIPLES OF INTERPRETATION IN VIENNA CONVENTION AND ARTICLE 33: INTERPRETATION OF TREATIES AUTHENTICATED IN TWO OR MORE LANGUAGES INDIA AND TAX INFORMATION AND EXCHANGE AGREEMENT (TIEA)
- INTERPRETATION OF TREATIES – MONIST VIEW , DUALISTIC VIEW AND TREATY OVER DOMESTIC LAW
- INTERNATIONAL TAX CONFLICTS AND DOUBLE TAXATION INTRODUCTION AND BASIC PRINCIPLES OF INTREPRETATION OF A TREATY
- CUSTOMARY INTERNATIONAL LAW OF TREATY INTERPRETATION – OBJECTIVE INTERPRETATION , SUBJECTIVE INTERPRETATION AND PURPOSIVE INTERPRETATION
- CUSTOMARY LAW OF TREATY INTERPRETATION PRINCIPLE OF EFFECTIVENESS AND CONTEMPORANEA EXPOSITIO AND LIBERAL CONSTRUCTION
- EXTRINSIC AIDS TO INTERPRETATION OF A TAX TREATY
- OBJECTIVES OF TAX TREATIES ,OBJECTIVE OF DTAAs AND PURPOSE OF ENTERING INTO A DTAA INTO INDIAN CONTEXT – SECTION – 90(1) ?
Section 8A - Anti-Avoidance Measures
Section 8B - BEPS
Section 9 - E-Commerce
- HOW BUSINESS IS TRANSACTED THROUGH E-COMMERCE AND PREVALENT BUSINESS FORMS IN VARIOUS SEGMENTS OF DIGITAL ECONOMY?
- GROWTH OF E-COMMERCE AND TAXATION ISSUES ON E-COMMERCE ?
- PERMANENT ESTABLISHMENT IN E-COMMERCE AND DETERMINATION OF NATURE OF INCOME IN E-COMMERCE TRANSACTIONS?
- OECD RECOMMENDATIONS UNDER ACTION PLAN 1 OF BEPS TO TACKLE TAXATION ISSUES OF E-COMMERCE AND INTRODUCTION OF NEW CHAPTER OF EQUALIZATION LEVY ?
- WHO IS LIABLE TO DEDUCT EQUALISATION LEVY AND WHOSE INCOME IS LIABLE FOR DEDUCTION OF EQUALISATION LEVY ?
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FUNCTIONS, ASSETS AND RISK (FAR) ANALYSIS
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 (including intangible property);
c) risks assumed by business;
d) Division of FAR among the AEs; and
e) importance of each function in the overall value chain.
For example, a manufacturer of software cannot be compared with a BPO service provider, as he performs different functions, employs different kind of assets and undertakes different type of risks.
However, software service provider can be compared with another software service provider.
COMPONENTS OF FAR ANALYSIS – FUNCTIONS PERFORMED
The important and significant activities carried out by each of the parties to the transaction are analysed. Functions which add more value to the transactions, are expected to fetch higher returns.
Some of the important functions (Subject to nature of business of an entity) generally observed, and examined in a transaction are as under :
- Manufacturing, production or assembly work ;
- Research and development;
- Purchasing and materials management;
- Business process management/ Administrative functions
- Marketing and Distribution
- Warehousing and inventory management
Once such principle functions are identified,
we compare such functions performed
in an uncontrolled transaction
to determine the extent of comparability.
COMPONENTS OF FAR ANALYSIS – ASSETS EMPLOYED
Comparability of assets used by the Assessee and comparable entity, as well we their classification (tangible as well as intangible) is an important criterion to determine mark up.
Generally, Tangible assets (like Plant & Machinery, Furniture & Fixture, Computers etc.) contribute to routine/ normal profits.
Generally intangible assets (like technical know-how, trademarks, patents, etc.) contribute to the super normal growth in profits of an enterprise.
COMPONENTS OF FAR ANALYSIS – RISK ASSUMED
This step involves identification of risk assumed by each of the parties to the transaction.
Extent of profit is the rewards for risk assumed. Risk and rewards are directly proportional. i.e. More the risk, higher the return, and lower the risk assumed, lower the return expected.
COMMON RISK INVOLVED IN THE BUSINESS
CREDIT RISK : –
- Risk relating to non-payment of dues by the customers.
MARKET RISK : –
- Market risk arise due to increase in competition, relative pricing pressures, change in customer’s needs and demand patterns, inability to develop in a market etc.
FINANCIAL RISK : –
- Financial risks relates to money management, which involves decisions on : –
• which customers should credit be given and credit period?
• Extent of debt liability?
• Customer dependence, i.e., whether major income is received from one or two clients, who may default on payments ?
FOREIGN EXCHANGE RISK : –
- Risk relating to impact on profits, arising due to fluctuation in foreign exchange rates.
COMMON RISK INVOLVED IN THE BUSINESS
CAPACITY UTILIZATION RISK : –
- It refers to risk relating to loss of profits due to unutilized capacity.
ATTRITION RISK : –
- Risk associated with losing key Managerial Personnel and Key employees, which contribute to the enterprise’s success.
INVENTORY RISK : –
Risk associated with management of inventory, like overstocking or slow/non-moving inventory. As a result, the enterprise may be forced to bear a loss of margin on the inventory, or incur additional costs to dispose-of the same.
CONTRACT TERMS – ASCERTAINING RISK
The contract terms of between assessee and its AE , help in determining risk assumed by each party and facilitates adjustments based on differences in risks that are undertaken in a controlled transaction as compared to uncontrolled transaction.
For example , captive service provider operating on cost-plus basis would have lower risk relating to receivable, marketing and credit risk which were borne by normal service provider.
In FAR analysis , “economically significant” functions performed, risks assumed, and assets employed should be considered (i.e. such functions, assets and risks that are likely to have an impact on cost/expenses, prices, profits arising in a transaction).
FAR analysis helps in:
- Determining the nature of functions performed by the assessee and AE(s);
- Determining true and correct characterization of the entities (Tested Party/ Others);
- Selection of most appropriate method for transfer pricing analysis; and
- Establishing comparability and undertaking economic adjustments.
ILLUSTRATIVE LIST OF FUNCTIONS, ASSETS AND RISKS FOR DIFFERENT ENTITIES