Transfer Pricing: India rules for foreign companies

What Indian officers look at

Indian transfer pricing audits focus on whether the Indian company is fairly paid for what it does. For service companies, the main questions are the markup, the cost base it is applied to, and whether the comparables are truly comparable.

Charges from the parent, such as management fees, are tested for benefit: the Indian company must show it received a service it would have paid for independently, with evidence such as reports, emails and time records.

Safe harbour rules offer fixed margins for some activities in exchange for certainty, and advance pricing agreements can fix the method for future years. Both reduce dispute risk where transactions are large and recurring.

Building a defensible file

• Functional analysis based on how the Indian company actually works.
• Current benchmarking with independent comparables.
• Intercompany agreements that match conduct.
• Year-end true-up so actual margins fall within range.

The foreign parent usually closes on the parent's own year end and the Indian company on 31 March, so true-ups and documentation may span two reporting years.

Checklist

• Functional analysis interviews
• Annual benchmarking
• Intercompany agreements
• Evidence of services received
• Year-end true-up
• Form 3CEB filed on time

Common mistakes

• Using stale comparables
• No evidence for management fees
• Cost base excluding pass-through costs inconsistently
• Missing the accountant's report

How this applies to your country

• USA to India en-US
• UK to India en-GB
• Japan to India en-JP
• Germany to India en-DE
• Singapore to India en-SG
• Australia to India en-AU
• China to India en-CN
• Hong Kong to India en-HK
• Russia to India en-RU
• Spain to India en-ES
• France to India en-FR
• UAE to India en-AE

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