Introduction
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.
