In order to make the actual allocation of funds consistent with that of the primary transfer pricing adjustment, Finance Act, 2017 inserted Section 92CE in the Income-tax Act, 1961 to provide for secondary adjustment by attributing income to the excess money lying in the hands of the associated enterprise.
As a result of primary adjustment, if there is an increase in the total income or reduction in the loss of the assessee, excess money which is available with its AE will have to be repatriated to India and to the extent it is not repatriated, it shall be deemed to be an advance made by the assessee to the AE on which interest will have to be calculated. Now, CBDT has notified new Rule 10CB which prescribes computation of interest income pursuant to secondary adjustment. Rule 10CB also provides that repatriation of excess money shall be made on or before 90 days from the:-
1) Due date of filing of return if primary adjustment to TP has been made suo-moto by assessee;
2) Date of order of AO or appellate authority, if primary adjustment determined in the order has been accepted by assessee;
3) Due date of filing of return in case assessee had entered into Advance Pricing Agreement;
4) Due date of filing of return in case assessee opted for safe harbour rules under section 92CB;
5) Due date of filing of return in case an agreement is made under Mutual Agreement Procedure (MAP).
With regard to the rate of interest to be computed in the case of failure to repatriate the excess money with in the prescribed time limit, rule provides for separate interest rates for international transactions denominated in Indian rupee and those denominated in foreign currency. The rate of interest is on annual basis and shall be computed as follows:-
a) at one year marginal cost of fund lending rate of State Bank of India as on 1st of April of previous year plus 325 basis points in case international transaction is denominated in Indian rupees.
b) at six month London Interbank Offered Rate as on 30th September of previous year plus 300 basis points in the case international transaction is denominated in foreign currency.