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DEEMED ASSOCIATED ENTERPRISES

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Deemed International Transaction In Transfer Pricing [Section 92b] (2)  

A transaction entered into by an enterprise with a person other than an Associated enterprise (i.e., independent third party) shall be deemed to be a transaction entered into between two AEs, if :

  • there exists a prior agreement in relation to the relevant transaction between independent third party and the AE; or
  • the terms of the relevant transaction are determined in substance between independent third party and the AE.

Facts:

  • I Ltd. of India and S International of Singapore are AE.
  • I Ltd. and U International enters into an agreement for provision of services by U International (Non AE of I Ltd.).
  • Terms of agreement between I Ltd. and U International will be governed by prior agreement between S International and U.

Issue:

  • Whether the transaction between I Ltd. and U International would be deemed as an international transaction ?

 

EXAMPLE 2 : –

  • In the above example, if the nature and purpose of the transaction between I Ltd. and U International is entirely different from what was contemplated in the prior agreement between S and U Ltd., whether the transaction between I Ltd. and U International would be deemed as an international transaction ?

SOLUTION : –

  • Transaction between I Ltd. and U International cannot be deemed as international transaction, as the nature and purpose of relevant transaction is completely different from what was contemplated in the prior agreement between U Ltd. and S International.

Facts:

  • BB Ltd. and B Ltd. of India are AE. BB Ltd. entered into an agreement with C international (non AE) to determine the terms of provision of services between C International and B Ltd.
  • B Ltd. and C International enter into a service agreement for provision of services.

Issue:

  • Whether the transaction between B Ltd. and C International would be deemed as an international transaction ?

Solution:

  • For an international transaction, one of the AE should be non-resident. In this case neither B Ltd. nor BB Ltd. is non-resident. Hence, the transaction between B Ltd. and C International cannot be deemed as international transaction.

EXPLANATION TO SECTION 92B – INTERNATIONAL TRANSACTION

The definition of the term ‘international transaction’ also includes several other items including tangible/ intangible property.