DRAFT TP slides (1st)
Page 1: Introduction
KPMG Confidential Document
Introduction to Transfer Pricing
Page 2: What is Transfer Pricing?
Controlled Transactions (Related Party Transactions)
Involves Company A and Company B (Associated)
Transfer Price Evaluation
Sales/purchases of goods, intangibles, and financial assistance considered
Page 3: Transfer Pricing Structure
Headquarters: Company A (Germany)
Other Manufacturers: Companies D (Brazil), C (France), B (China)
Page 4: Arm's Length Principle
Definition: Price of controlled transaction should match that of independent parties under similar conditions.
OECD Model Tax Convention, Article 9
Profit adjustments allowed if conditions differ in related transactions.
Page 5: Importance of Transfer Pricing
Market-driven prices vs. related party transactions
Impact on reported taxable income
Influence of various tax rates in different jurisdictions
Page 6: Transfer Pricing Example
Companies Y and X scenario affecting consolidated operating profits and taxes.
Variations in transfer prices lead to differences in total tax outcomes.
Page 7: Key Objectives of Transfer Pricing
Reduce overall tax burden for parent company
Fair profit allocation among entities in MNE
Compliance with tax regulations
Minimize tax risks (audits/adjustments)
Page 8: TP Regulations Overview
Recent developments in transfer pricing regulations
Page 9: Historical Regulations
2003: Transfer Pricing Guidelines issued
2009: Section 140A of Income Tax Act
Other regulations issued in 2012, 2019, and 2023
Page 10: Section 140A
Arm's length transactions: Powers of DG
Adjustments: Price substitution and disallowing expenses
Page 11: TP Rules 2023 Overview
Applicable for YA 2023 and beyond
Adjustments by Director General on various TP elements
Page 12: New Developments in TP Rules 2023
Updated definitions and documentation requirements
Page 13: TP Concepts
Arm's Length Principle: Ensures fair pricing in controlled transactions.
Controlled vs. Uncontrolled Transactions.
Page 14: Related Party Transactions Examples
Types include payment for purchases, supply of materials, etc.
Page 15: Intangible Property in TP
Definitions and examples of intangible assets affect pricing.
Page 16: Associated Persons under TP
Defined relationships are significant for transfer pricing implications.
Page 17: Functional Analysis
Evaluation of functions, assets, and risks in business operations.
Page 18: FAR Illustration
Examples of different manufacturer roles within MNC structures.
Page 19: Distribution Models
Different types of distributors illustrated.
Page 20: TP Methodologies Overview
Methods used to determine arm’s length pricing
Types include CUP, TNMM, Profit Split, etc.
Page 21: CUP Method
Detailed explanation and application of the Comparable Uncontrolled Price method.
Page 22: CUP Application
Conditions for comparability in CUP method.
Page 23: Transactional Net Margin Method (TNMM)
Explanation of TNMM method application.
Page 24: TNMM - Application
Steps to comply with TNMM methodology.
Page 25: TNMM Example
Illustration of normal operating margins and adjustments.
Page 26: TP Documentation Types
Requirements for maintaining TP documentation.
Page 27: Importance of TPD
Compliance and potential risk identifications.
Page 28: Penalties for Non-Compliance
Financial penalties outlined under Income Tax Act.
Page 29: Arm's Length Range
Definition and importance of arm's length ranges in TP.
Page 30: ALR Example
Example of determining the arm's length range with operational margins.
Page 31: Conclusion
Recap on TP considerations and importance within the context of KPMG guidelines.