Transfer Pricing means establishing a price for International Transactions taking place between the Associated Enterprises. Transfer Pricing is an Anti-Tax Avoidance Law which acts as a deterrent against Global Base Erosion and Profit Shifting. Transfer Pricing helps the Government of any country to determine the fair amount of profits that should be made by an entity in respective tax jurisdiction, which ultimately helps a country to collect rightful taxes for the activities performed by the Multinational Corporation.
In India, transfer pricing is a fast emerging field which impacts almost every area of business which have presence in more than one country i.e. associated party transactions or on specified domestic transactions. It is an internationally accepted practice that such ‘transfer pricing’ should be governed by the Arm’s Length Principle (ALP) and the transfer price should be the price applicable in case of a transaction of arm’s length. Multinationals are perceived to be potentially capable of shifting their profits from high tax jurisdictions to low tax jurisdictions with the objective of reducing global tax liability. On this premise the tax regulators view the international transactions between associated enterprises with a lot of scepticism and are able to raise tax issues which have huge tax ramifications. India is one of the largest contributors to global transfer pricing litigation and in many ways leads the way in creating newer pastures for the Revenue authorities globally.
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