Over the years since the introduction of the Indian Transfer pricing regulations, the transfer pricing audits based on the experience and learnings gained have seen numerous interpretations of the provisions, thereby leading to transfer pricing adjustments. The Indian transfer pricing litigation scenario has seen the trend of adjustments shifting from mere dispute on comparable companies to larger issues such as location savings, management cross charges, intangibles, share valuations, business restructuring, etc.
One such issue being the continuing debit balance in the financials of multinational companies(MNC). Globally due to the financial exigencies, the MNCs often commercially require to defer the payables / receivables. The continuing debit balance / receivables have been treated by the tax authorities as an international transaction and thereby sought to impute arm's length interest on receivables outstanding from the associated enterprise (AE) that were not realized within the credit period.
The Section 92B of the Indian transfer pricing regulations provides the coverage of the transactions that could be treated as international transaction. Vide Finance Act 2012, a clarificatory Explanation was inserted with retrospective effect from 1 April 2002. By virtue of the said Explanation, inter alia the expression 'international transaction' included capital financing such as any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type o