Trends and Developments
The Latest in Transfer Pricing Law in India
Transfer pricing (TP) regulations were introduced in India in 2001. The law has consistently evolved since its introduction almost a quarter of a century ago. Indian transfer pricing law today aligns with global best practices such as the introduction of an interquartile range of 35th to 65th percentile, safe harbours, secondary adjustments and an Advance Pricing Agreement (APA) regime which provides unparalleled certainty in India. While the APA regime is criticised for its pace of closure (an average of 54.65 months for closure of unilateral APAs and 65.61 months for bilateral APAs), and aggressive positions adopted by the tax administration, the certainty offered for up to nine years, once the APA is signed, has retained the attraction of the APA programme amongst taxpayers. Ever since the first set of transfer pricing audits took place in India, certainty on their Indian transfer pricing positions has been a cause of concern amongst multinationals across the globe.
Indian transfer pricing law has several nuances and unique features. The definition of “transaction” is very wide in the law, and includes an arrangement, action or understanding in concert, whether such arrangement, action or understanding is formal, or in writing, or intended to be enforceable by legal proceeding. India also has a very wide definition of “associated enterprises” which includes a deeming fiction. Similarly, the definition of international transactions is also very wide and includes a deeming fiction.
Current trends and developments pivot around such nuances and wide definitions in the law. Section 92B of the ITA specifically mentions business restructurings or reorganisations to be included as international transactions, irrespective of these transactions’ impact on profits, and requires reporting of such transactions as part of providing transfer pricing documentation. The ITA does not include guidance clarifying which circumstances entail a restructuring reorganisation, though the UN and OECD TP Guidelines seek to clarify the same. The UN Guidance refers to a cross-border redeployment of functions, assets and risks. The OECD TP Guidelines refer to the reorganisation of commercial or financial relations between associated enterprises.
Even though transfer pricing jurisprudence has rapidly evolved (there are over 10,000 reported rulings), only a few precedents address the interplay of a dynamic business landscape with transfer pricing laws. The present article shall illustrate the cornerstone of transfer pricing jurisprudence, before pressing an analytical switch toward issues related to alternate dispute mechanisms, secondary adjustments, and the ever-expansive realm of the OECD Two-Pillar Solution on the transfer pricing ecosystem in India for 2025.