Rahul (CA Practice ) (1818 Points)
18 June 2010Dear All
I am facing one practical issue in Transfer Pricing. I need to resolve it urgently.
Parent Company ( P ) of my client give some guarantee for Loans to the Subsidiary Company ( S ) in India. Parent Company charges some fees for such guarantees equal to .3% of the Guaranteed Amount.
Now my Questions are :
1) Whether Transfer pricing applies in such situation?
2) If yes then what should be the comparative for computation of Arms Length Price.?
Regards
Rahul Srivastava
Ankit CA and CS
(Manager - Accounts)
(204 Points)
Replied 18 June 2010
Yes Transfer pricing will definately apply and comparivites i thnk can be what if the company gives guarantee for other thn subsidiary and what sort of arrangement do it make with tht non related entity..
malli and Nag
(CA)
(119 Points)
Replied 18 June 2010
but generally other companies can not give guarantee
G Anandhi
(CA Firm)
(130 Points)
Replied 18 June 2010
Hi,
Looks like in your case, the Parent Company stood as 'guarantor', for the borrowing from an external agency such as bank or financial institution, on behalf of the subsidiary. In such a case, the guarantee fee charged by the bank/FI on the Parent company will normally passed on to the 'subsidiary company' since it is the beneficiary of the funds. Hence in this case, you may adopt CUP method (ie the fee paid by parent company to the lending institution is the arm's length price) to justify the payment/charge of guarantee fee by the Parent on the Subsidiary (your client).
You may get some more details from your client as to the nature of guarantee etc. to get the correct analysis of arm's length pricing. Hope this answer helps. If you would like to share the specific issue, please email me at anandhi.ca @ gmail.com.
Regards
Anandhi
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