These are uncertain times; these are exciting times. We are stepping out of the Old; we are stepping into the New The path of taxation, a path on which we walk with undying enthusiasm, is bending ahead. Beyond the bend lies the new world of taxation, a world inhabited by BEPS, MLI, POEM and GAAR. Of these, GAAR truly is intimidating, standing – sternly – in the way of tax planning, compelling us to instil an element of caution in all our tax planning ventures. Unless we equip ourselves to deal with the challenges posed by GAAR, unless we understand how GAAR affects tax planning, we will not succeed in serving those who, with such reverence, rely on us to take care of their tax matters. Our tradition of service urges us to ponder: how do we achieve tax-efficiency in the era of GAAR?

Commodity transactions, both exports and imports, are quite common between Associated Enterprises (AEs). These transactions have one distinct feature: the priceCommodity transactions, both exports and imports, are quite common between Associated Enterprises (AEs). These transactions have one distinct feature: the price

Consider this case. An Indian E-Commerce Company (say, India E-Com Ltd.) partly develops valuable Intangible (unique software to conduct and manage online retail business) for e-commerce, through in-house R & D. India E-Com Ltd. transfers the partly-developed software to its Ireland Subsidiary for a lump sum consideration.

TAXWIZE is a Professional Firm of India, consisting of Ex-Big 4 Tax and Transfer Pricing professionals. We offer services in the areas of Transfer Pricing, International Tax, Tax Treaty matters, Corporate Direct Tax, and Indirect Tax. In these areas we undertake planning, transaction structuring, arm’s length benchmarking, compliance, representation before Tax Authorities and appeal litigation, including arguing cases before CIT (Appeals) and Dispute Resolution Panel (DRP).

Two weeks back the OECD, as part of its Action Plan to address Base Erosion and Profit Shifting (BEPS),
released on 8 June 2015, Action 13: Country-by-Country (CbyC) Reporting Implementation Package. This Implementation Package is a follow-up on two reports previously released by the OECD:
(i) September 2014 Report proposing a Three Tier Global Standard for Transfer Pricing Documentation (Master File, Local File and CbyC Report) along with the Standard Template for CbyC Report; and
(ii) February 2015 Implementation Guidance on how to implement the CbyC Reporting Regime.

To bring into operation the amended Sec. 92C (2) which was amended by the Finance (No. 2) Act, 2015the
CBDT brought out on 21 st May 2015 a Draft Scheme for computation of ALP. The Draft Scheme has been extensively analysed by the Professional Community. In this write up, among other things, we focus on the
following issues :

You might know this. To compute Arm’s Length Price, under Resale Price
Method (RPM), Cost Plus Method (CPM) and Transactional Net Margin
Method (TNMM), we use a Profit Level Indicator (PLI), to compare
profitability of either the Taxpayer or its Associated Enterprise (the Tested Party) with that of Comparables. The PLI that we use with RPM is the ratio of ‘Gross Profit (GP)/Sales’; with CPM it is ‘GP/Cost’. And with TNMM the PLI is one of these three ratios: ‘Operating Profit (OP)/Sales’ or ‘OP/Cost’ or ‘OP/Assets’.

On the point of deadline to complete TP Assessments under Sec. 144C our analysis is summarised below.

Consider the case of an Indian Pharma Company ‘I Ltd.’ which is developing a drug to cure diabetes. Eight stages of Research and Development (R&D) have to be passed successfully to get from a pharma molecule to a marketable drug. Assume that first two stages of R&D are done in India. Then the molecule is transferred to ‘S GmbH’, a Swiss Subsidiary of ‘I Ltd’, for subsequent stages of R&D, because Switzerland is a better location for advance R&D. That is due
to availability of qualified scientists, effective IP protections laws, and better R&D infrastructure, in Switzerland.

International tax issues have never been as high on the political agenda as they are today. The integration of national economies and markets has increased substantially in recent years, putting a strain on the international tax rules, which were designed more than a century ago. Weaknesses in the current rules create opportunities for base erosion and profit shifting (BEPS), requiring bold moves by policy makers to restore confidence in the system and ensure that profits are taxed where economic activities take place and value is created.

To bring into operation the amended Sec. 92C (2) which was amended by the Finance (No. 2) Act, 2015 the CBDT brought out on 21st May 2015 a Draft Scheme for computation of ALP. The Draft Scheme has been extensively analysed by the Professional Community. In this write up, among other things, we focus on the following issues: