Case Study – Transfer Pricing Penalties India
Fulcrum India Private Ltd., is an Indian company in which Sunil holds following shareholding : –
| Nature of Instrument | Number | Held by Sunil |
| Equity Shares | 10,000 | 2,400 |
| Non-convertible preference shares | 50,000 | 50,000 |
During financial year 2018-19, Fulcrum India paid a remuneration of Rs. 5 crores to Sunil, who is a non-resident. Fulcrum India failed to report the above transaction in its Transfer Pricing filing. What will be the amount of penalty which shall be leviable on account of this default ?
Case Study – Transfer Pricing Penalties India – Solution
Two persons would be treated as Associated Enterprises, where one person holds, directly or indirectly, shares carrying 26% or more of the voting power in the other enterprise . In the present case, since Sunil holds 24% equity share capital of Fulcrum India Private Ltd. and 100% non-convertible preference shares, it cannot be said that Sunil holds 26% or more of the voting power in Fulcrum.In view of this,the two parties would parties not be considered as AE’s, and accordingly this transaction would be outside the purview of Transfer Pricing. In view of this, no penalty shall be levied on Fulcrum India Private Ltd .
Similar to the question above, the students can get the problem in the examination , where they may be asked to quantify the penalty applicable for non-compliance of Transfer Pricing provisions. In every such problem the following approach should be adopted : –
(a) Ascertain whether the parties involved in the transaction are Associated Enterprises ?
(b) Ascertain, whether there is any default /delay in complying with the Transfer Pricing provisions ?
(c) If the answer to both the above question is Yes, quantify the applicable penalties. If the answer to either of the above questions is No, no penalty shall be applicable.
For any queries, please write them in the Comment Section or Talk to our tax expert
