Transfer Pricing

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M. PARTHASARATHI (Querist)
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05 June 2010 FOR BPO, UNDER COST PLUS CONTRACT METHOD (Parent Co. - in UK, Subsidiary - in INDIA):

1)Please suggest the markup rate (in percentage) at par with the industry.

2)What are the expenses, allowable from the markup portion.

3)What are the expenses includable in the cost.

4)Please suggest tax planning.

kantijain

kantijain (Expert)
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05 June 2010 Dear Parthasarathi,

To be frank in the current trend set by the income tax department- especially transfer pricing department, any amount of net margin below 30% to 35% is not acceptable by them, atleast in Bangalore.

Also it is not practically possible to comment on the mark up for BPO industry as they are so many sectors within BPO industry & within each sector there are so many other factors like risk, asset employed and functions performed which will influence the margins/markup.

However personally i feel a net markup or margin in range of 25-30% must be good enough to overcome the hurdles posed by IT dept. Since it is net margin, there is no scope of reduction of further expenses & cost shall include all the cost including dep on fixed asset. I hope ur first 3 queries are resolved.

wrt tax planning, it is not feasible to comment on same w/o a detailed study of the co & its related industry. For further details pls feel free to contact me at kanti.salecha@gmail.com

Regards
Kanti Jain

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