Every transaction between your India subsidiary and its foreign parent or group companies — management fees, royalties, cost allocations, intercompany goods and services — falls under India’s transfer pricing regime. Getting the documentation and pricing policy wrong at setup is one of the most common sources of tax disputes for foreign-owned Indian entities, and disputes here can take years and significant cost to resolve.
What Falls Under Transfer Pricing Scrutiny
- Management and technical service fees charged by the parent to the Indian entity
- Royalty payments for use of brand, technology, or intellectual property
- Intercompany purchase and sale of goods
- Cost allocations for shared services (IT, HR, finance) across group entities
- Intercompany financing — loans, guarantees, and the interest rates applied to them
Documentation Requirements
India’s transfer pricing regime under the Income Tax Act requires contemporaneous documentation — prepared at the time of the transaction, not reconstructed afterward when a tax notice arrives. For entities above prescribed thresholds, this includes a Local File, and where the broader group meets consolidated revenue thresholds, a Master File and potentially Country-by-Country Reporting.
An Accountant’s Report in the prescribed form (Form 3CEB) is required annually for entities with international related-party transactions, certifying that the transactions have been reported and are at arm’s length.
Why Pricing Policy Should Be Set Before Transactions Begin
The most common transfer pricing disputes arise not because a company deliberately underpriced a transaction, but because the pricing policy was never formally documented at the outset — intercompany invoices were raised without a benchmarking study behind them. Setting a defensible pricing policy before the first intercompany transaction, backed by a benchmarking study against comparable arm’s-length transactions, is significantly cheaper than defending an assessment after the fact.
How We Help
- Transfer pricing policy design for management fees, royalties, and intercompany transactions before they begin
- Benchmarking studies to support arm’s-length pricing positions
- Local File, Master File, and Form 3CEB preparation and filing
- Representation in transfer pricing assessments and dispute resolution
If your India entity already has intercompany transactions running without documented pricing policy behind them, the sooner this is addressed the smaller the exposure. Talk to A2 Consultants about your transfer pricing position.