Transfer Pricing including specified domestic transactions Under Section 92CC and 92CD?

Meaning

Transfer pricing is a term used to describe the pricing of goods or services transferred between two or more related parties, such as a parent company and its subsidiary, or two subsidiaries of the same parent company. It is a way to ensure that the transactions between related parties are conducted at arm's length price, i.e. the same price that would have been charged if the transactions were between unrelated parties.

In India, transfer pricing provisions are governed by Sections 92 to 92F of the Income Tax Act, 1961. The provisions of transfer pricing are applicable to both international transactions and specified domestic transactions.

International Transactions: As per Section 92B of the Income Tax Act, an international transaction means a transaction between two or more related parties involving the sale, purchase, or lease of tangible or intangible property, provision of services, or lending or borrowing of money. These transactions should have a bearing on the profits, income, losses, or assets of such parties.

Specified Domestic Transactions: As per Section 92BA of the Income Tax Act, specified domestic transactions mean any of the following transactions between two or more related parties:

1. Any expenditure incurred or payment made for the specified domestic transaction exceeds Rs. 20 million in a financial year.
2. Any transfer of goods or services which is covered under Section 80-IA(8) of the Income Tax Act.
3. Any business restructuring, such as amalgamation, merger or demerger.

Provisions of Transfer Pricing: The provisions of transfer pricing require related parties to undertake their transactions at arm's length price. Arm's length price is defined as the price that would have been charged between two unrelated parties under similar circumstances. To determine the arm's length price, the following methods can be used:

1. Comparable uncontrolled price method (CUP)
2. Resale price method (RPM)
3. Cost-plus method (CPM)
4. Transactional net margin method (TNMM)
5. Profit split method (PSM)

If the price charged by related parties is not at arm's length, the tax authorities may make an adjustment to the taxable income of the related parties to reflect the arm's length price. The adjustment may result in additional tax liability for the parties involved.

Conclusion 

In conclusion, transfer pricing provisions require related parties to undertake their transactions at arm's length price. These provisions are applicable to both international transactions and specified domestic transactions. If the price charged by related parties is not at arm's length, the tax authorities may make an adjustment to the taxable income of the related parties.

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