Transfer pricing

551 views 2 replies

CA Radhika Sarda

Chartered Accountant

33 Points Joined December 2011

Indian company incurs certain expenditure for purchase and making of dyes of certain parts,which are sent to its holding company in Germany.In Germany they are assembled and samples made which are sent to Indian clients to check if they suite their need.If the customer is satisfied, then the customer would enter into agreement with Indian company which will assemble that machine(sample of which is being assembled now in germany)in India.The Germany company,which is Indian company's holding company reimburses this amount for purchases made to make the sample to the Indian company.
The amount received is greater than the actual expenditure incurred.
So should this be booked as foreign currency gain.or be reduced from research and development cost.

Does this entire transaction involve an element of transfer pricing?
(The design of machine if approved by customer will be property of German Company)

Replies (2)

Aarush

Delhi

1566 Points Joined August 2008

Yes, transaction are in the pipe line of transfer pricing..

foreign currency will be booked only when there is exchange of USD to INR or vice versa..

how you can reduce research & development expenses ? when reimbursement payment is more than actual ? why holding company doing ? its clear state exchange of profit from one country to another one..

pl note 5% variance can be ignore for arm length pricing ..(revised 3%) if variance more you have to report in transfer prcinng.

also you have to make note on these transaction in related party disclosure.

sumit soni

42 Points Joined April 2011

gaurav aggarwal - now the percentage is been revised. not particular percentage is provieded. Now prescribe percentage is applied which is decided by the govt . For diff. -diff. Transactions.