The Finance Minister, Arun Jaitley announced the Union Budget 2016 on 29 February 2016, amidst high expectations from several stakeholders including taxpayers, investors and consumers. From a Transfer Pricing (TP) perspective, one of the most important development is the introduction of Country-by-Country (CbyC) reporting norms for TP documentation with effect from the Financial Year (FY) beginning 1 April 2016. The Organisation for Economic Co-operation and Development (OECD) and G201 countries as part of their Base Erosion and Profit Shifting (BEPS) project under Action Plan 13, introduced the three-tier TP documentation structure, which includes master file, local file and CbyC reporting. India, being an active participant of OECD's BEPS project, has proposed to adopt the above recommendations of the OECD's Action Plan 13 in the TP regulations announced during this budget. Some other amendments in the TP arena have also been proposed.
Recently, the Delhi High Court (High Court) in the case of Denso India Limited2, rejected aggregation of an import transaction under the Transactional Net Margin Method (TNMM), since the facts of the case demonstrated that the arrangements made in relation to the transaction, when viewed in their totality, differed from those which would have been adopted by independent enterprises behaving in a commercially rational manner. In a Tribunal ruling in case of Essilor India Pvt Ltd3, the Bangalore Tribunal (the Tribunal) held that in the absence of an arrangement and agreement between the taxpayer and its Associated Enterprise (AE), incurrence of more expenditure on Advertisement, Marketing and Sales Promotion (AMP) compared to comparable companies cannot be inferred as an international transaction between the taxpayer and its AE.