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Transfer Pricing Penalties India

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May 4, 2021

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3 mins read

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 ?

International Taxation Services

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

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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