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Transfer Pricing Audit and Issuance of Form 3CEBKedar Karve10 October 2015Application No. 650

Contents1Brief Overview of Transfer Pricing Regulations in India2Section 92E of Income-tax Act, 19613Specific Concerns Form No 3CEB4Penalty leviable5Q&A1

Scheme of Transfer PricingRegulations in India2

Brief Overview of Transfer Pricing Regulations in IndiaRelevant Provisions under Section 92Computation of Income fromInternational Transaction / Specified Domestic Transaction having regard to Arm’s Length PriceWithAssociated EnterprisesSection 92AInternational TransactionSection 92BSpecified Domestic TransactionSection 92BAArm’s Length PriceSection 92C Rule 10B/ 10CDocumentation and CertificateSection 92D and Section 92EScrutinyPower of AO and TPOSection 92CADispute Resolution PanelSection 144CPenaltiesSection 271 (1) (c), 271AA, 271BA, 271G3

Scheme of Transfer Pricing Regulations in IndiaOther relevant provisionsAdvance Pricing AgreementsSection 92CC and CD Rules 10F to 10TSafe HarbourSection 92CB Rules 10TA to 10TG4

Section 92E of Income-tax Act, 1961Accountants Report55

Section 92E of Income-tax Act, 1961 (the Act)Section 92E Every personTraditionally Form No. 3CEB entailedcovering of International transactionswith Associated EnterprisesHowever Domestic Transfer Pricing wasmade applicable from assessment year2013 -14 whereby the existing FormNo. 3CEB was revised to include ‘Part C’covering ‘clauses 21 to 25’ to capture datarelating to specified domestictransactions (SDT)With the advent of the same, the term‘related party’ is also used along with thetraditional term Associated Enterprise foraddressing specified domestictransactions who has entered into an international transaction orSDT during a previous year shall obtain a report from an accountant and furnishsuch report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner bysuch accountant and setting forth such particulars as may beprescribedRule 10EThe report from an accountant required to be furnished undersection 92E by every person who has entered into aninternational transaction or SDT during a previous year, shall bein Form No. 3CEB and shall be verified in the manner indicatedtherein6

Accountants ReportSummary of Section 92E read with Rule 10E A person means every person as defined u/s 2(31) of the Act International Transaction – Section 92B & 92BA of the Act Report - Form No. 3CEB [Rule 10E] Accountant - Explanation to Section 288(2) of the Act Specified date - Section 92F(iv) - Explanation 2 to Section 139(1) Obtain a report and furnish – Penalty of Rs. 100,000 (Section 271BA) No monetary limit for furnishing the reportForm no. 3CEB consist of the following parts: Report Annexure to the Report Appendices to the Annexure (wherever required)7

Accountants ReportForm No. 3CEB Obtained by every person entering intoan international transaction and specifieddomestic transactions To be filed by the due date for filingreturn of income (e-filing mandatory)[See rule 10E]Report from an accountant to be furnished under section 92E relatingto international transaction(s)1.We have examined the accounts and records of ENTITY NAMEAND POSTAL ADDRESS - PAN No. that have been madeavailable to us relating to the international transactions andspecified domestic transactions entered into by the assesseeduring the previous year ending on 31st March 2015.2.In our opinion proper information and documents as areprescribed have been kept by the assessee in respect of theinternational transaction (s) and specified domestic transaction(s) entered into so far as appears from our examination of therecords of the assessee.3.The particulars required to be furnished under section 92E aregiven in the Annexure to this Form. In our opinion and to thebest of our information and according to the explanations givento us, the particulars given in the Annexure are true and correct. Opinion whether prescribed documentshave been maintained the particulars inthe report are “true and correct” Different from concept of “true and fair”under audit Inputs: Related party ledgers extracts Related party Schedule under AS-18 Sample Invoices/ Vouchers / DN /CN Relevant intra-group agreements CUP/ Internal comparison infoPlace :Date :For A B C & Co. LLPChartered Accountants8

Understanding the contents of Form No 3CEBWe have examined the accounts and records of ENTITY NAME AND POSTAL ADDRESS - PAN No. thathave been made available to us relating to the international transactions and specified domestictransactions entered into by the assessee during the previous year ending on 31st March 2015 Limits the scope of review to only “accounts & records” related to International Transactions and SDTs Therefore, no requirement on part of the Accountant to comment or certify on the “true and fair” view ofthe financial statements Onus placed on the taxpayer to maintain the list of accounts and records prescribed under lawIn our opinion proper information and documents as are prescribed have been kept by the assessee inrespect of the international transaction (s) and specified domestic transaction (s) entered into so far asappears from our examination of the records of the assessee. Onus on accountant to examine whether the documents prescribed under Rule 10D have beenmaintained by the assesse A basic verification of the accounts, records and of the documentation maintained on a test check basisto verify whether “proper” records have been maintained and whether the information anddocumentation maintained is adequate and accurate needed9

Understanding the contents of Form No 3CEBThe particulars required to be furnished under section 92E are given in the Annexure to this Form. In ouropinion and to the best of our information and according to the explanations given to us, the particularsgiven in the Annexure are true and correct. Taxpayer to prepare the Annexure Accountant is supposed to verify the Annexure to ensure that particulars are “true and correct” Review restricted to information reported / certified in Form No. 3CEB “True and Correct” view – lays emphasis on the factual accuracy of the information provided Requirement is different from “True and Fair” view as required to be commented upon by a statutoryauditorThe Institute of Chartered Accountants of India has issued in August 2013 a GuidanceNote on‘Report under Section 92E of the Income-tax Act, 1961’10

Responsibility of the taxpayer Identify all international transactions and specified domestic transactions during the year with AEs Compute the ALP as per Section 92C, including: Selection of the most appropriate method to be used Computation of the ALP(A TP Study would cover the above) Collate, maintain information / documentation prescribed u/ sec 92D Furnish completed Annexure to Form No. 3CEB to Accountant11

Responsibility of the AccountantReview accuracy and completeness of information compiled by taxpayer Guide the taxpayer in identification of Aes, especially Deemed AEs Reconcile transactions in Form No.3CEB with audited accounts (related party disclosure, notes to account, ) Test-check agreements, invoices, negotiations, correspondence, ledger accounts, etc. Collate documents – 100% CUP details, reimbursement / recovery details, documents evidencing the receiptof services and benefits, etc. Compare last year’s Form 3CEB with current year’s to ensure no regular international transactions is missedout ‘Smell test’ - to identify unreported transactions e.g. Guarantees given on behalf of subsidiaries, interest freeloan, loan taken and repaid in the same year, etc. Interview client to check if ‘Deemed International Transaction’ existsCertify information contained in Form 3CEB is ‘true and correct’ Different from concept of ‘true and fair’ under statutory audit12

Specific ConcernsForm No 3CEB1313

Specific Concerns - Form No 3CEB Whether Form No 3CEB needs to be filedoBy a Foreign entityoWhere a person earns income not chargeable to taxunder the provisions of the ActoWhere a person earns income which is not taxablein India on account of provisions of the relevantDouble Taxation Avoidance Agreement betweenIndia and the relevant countryoWhere a person enters into a transaction /arrangement wherein no income arises to suchperson Valuation of intangible assets and certification on theappropriateness of the same by the Accountant14

Specific Concerns - Form No nternationalTransactionsCovers cases whereWhere no guaranteefees charged, noteneeds to be provided inForm No 3CEBNo place in the Form No3CEB for disclosure ofvalue of restructuringindependent third partyinterposed by two AEs toremain out ofTP ambitWhere self adjustment ismade, no place in theonline Form No 3CEBfor such disclosureSignificant terms ofrestructuring needs to bedisclosedAmendment in Section92B(2) of the Act byFinance Bill 201415

Penalty leviable1616

Penalties: Section 271AA of the ActSection 271AA of the Act‘any person’ fails to keep and maintain anysuchinformation and document as required bysection 92D (1) and (2) or fails toreport any international transaction ormaintains or furnishes any incorrectinformation or documents Stringent penal provisions in force Imperative for taxpayers to disclose allinternational / specified domestic transactions Form No 3CEB required to be filed even ifinternational transactions do not exceed INR 1crore17

Q&A&AnswersQuestions18

Thank YouPresenter Details:Kedar V. KarveDirectorGlobal Transfer PricingServicesBSR & Co. LLPThank You !1919