Transfer pricing regulations are increasingly becoming popular over the last few years due to the increasing tax controversies among multinational companies.
When two related entities enter into any transaction, they manipulate the price to their advantage so that the tax liability of the group company is minimum. To curb this, transfer pricing law came into existence.
As per the Indian Transfer Pricing law, income arising from international transactions or specified domestic transactions between associated enterprises should be computed based on the arm’s length price.
Earlier the applicability of transfer pricing provisions was restricted to International Transactions only. However, with subsequent amendments, the scope of transfer pricing provisions is extended to specified domestic transactions also. With this amendment, all the transfer pricing requirements relating to transfer pricing documentation, transfer pricing accounting, transfer pricing methods, etc. shall equally apply to specified domestic transactions.