ACCOUNTANT’S REPORT

NIRC’S TRANSFER PRICING WORKSHOP

21ST NOVEMBER 2014

By: CA.Gaurav Garg

Agenda

Applicability Legislative framework Form 3CEB & Annexures to Form

3CEB Issues relating to Form 3CEB Case study

13 Nov 2011

Applicability…

Section 92 E“Every person who has entered into an international transaction or specified domestic transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed”

Section 271BAIf any person fails to furnish a report from an accountant as required by section 92E the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of one hundred thousand rupees.

Applicability

Applicable on all type of Assessee who has entered into specified domestic transaction or international transaction

Value of Specified domestic transaction should not be less than 5cr in aggregate

Accountant means Chartered Accountant in practice Specified date shall have the same meaning as

assigned to “due date” in Explanation 2 below sub-section (1) of section 139 i.e. 30th day of November of the assessment year

Legislative Framework

Applicability of TP provisions

Computation of ALP

TP Documentation

Issuance of Form 3CEB

E-Filing of Form 3CEB

Taxpayer

Chartered Accountant

Taxpayer

Section 92E

Form 3CEB

Form 3CEB

ReportAnnexures to

Form 3CEB

Part A Part B Part C

General International Transactions

Specified Domestic

Transaction

Form 3CEB

Scope of examination under section 92E of the Act

The Accountant’s Report (Form 3CEB) has got two parts Report, &, Annexure to Form 3CEB

Annexure to Form 3CEB has again three parts Part A – Clause 1 to 9 – Particulars of the tax payers Part B – Clause 10 to 20 – Particulars regarding

international transactions Part C– 21 - 25– Particulars regarding specified domestic

transactions

..Form 3CEB..

Scope of examination under section 92E of the Act

Form 3CEB Para 1

“*I/we have examined the accounts and records of ……………….. (name and address of the assessee with PAN) relating to the international transactions and specified domestic transaction entered into by the assessee during the previous year ending on 31st March, ……….”

..Form 3CEB..

The scope of examination envisaged by section 92E is restricted to such examination of accounts and records of the taxpayer relating to the international transaction and/ or specified domestic transactions entered into by the assessee during the previous year under examination

Ensuring completeness of the listing of transactions is the responsibility of the taxpayer

MRL should be obtained from the client

..Form 3CEB..

Scope of examination under section 92E of the Act

Guidance Note on Transfer Pricing issued by the ICAI

“9.9 Ensuring completeness of the listing of international transactions is the responsibility of the assessee….”

“9.10 The accountant should obtain a written representation from the assessee providing him with the name, address, legal status and country of tax residence of each of the enterprises with whom international transactions have been entered into by the assessee, and association linkages among them.”

..Form 3CEB..

Scope of examination under section 92E of the Act

Form 3CEB Para 2

“ In *my/our opinion proper information and documents as are prescribed have been kept by the assessee in respect of the international transaction(s) entered into so far as appears from *my/our examination of the records of the assessee”.

..Form 3CEB..

Scope of examination under section 92E of the Act

Guidance Note on Transfer Pricing issued by the ICAI

“9.12…… It should however be noted that the accountant is not responsible for the content of the transactions and documentation maintained by the assessee.”

“9.13….If any document is not maintained, then the accountant should suitably qualify his report or disclose the same in his report depending upon the facts and circumstances of each case. The accountant should state the qualification in the report making it comprehensive and self explanatory…”

..Form 3CEB..

Scope of examination under section 92E of the Act Form 3CEB Para 3

“The particulars required to be furnished under section 92E are given in the Annexure to this Form. In *my/our opinion and to the best of my/our information and according to the explanations given to *me/us, the particulars given in the Annexure are true and correct”.

..Form 3CEB..

Scope of examination under section 92E of the Act

Guidance Note on Transfer Pricing issued by the ICAI

“9.16… As mentioned above, the particulars should be obtained from the assessee, duly authenticated, which should be reviewed by the accountant. In case of any negative remark or qualification about this matter, the same should be properly reported.”

..Form 3CEB..

Scope of examination under section 92E of the Act

Guidance Note on Transfer Pricing issued by the ICAI

“9.17 The accountant must limit his scope of work and the review procedures to the extent certified in Form No.3CEB. For e.g. in the Annexure the method which has been used to determine the arm’s length price needs to be stated. In this context the accountant is only required to ensure that the method stated as being used to determine the arm’s length price by the assessee has actually been used and it is not the accountant’s responsibility to ensure that the method so used is the most appropriate method as prescribed by the Board.”

..Form 3CEB..

Scope of examination under section 92E of the Act

Annexure to Form 3CEB – Part A Clause 1 – Name of the assessee Clause 2 – Address Clause 3 – Permanent account number Clause 4 – Nature of business or activities of the assessee Clause 5 – Status Clause 6 – Previous year ended Clause 7 – Assessment year Clause 8 - Aggregate value of international transactions as per books of

accounts Clause 9 - Aggregate value of SDT as per books of accounts

..Form 3CEB..

Scope of examination under section 92E of the Act

Annexure to Form 3CEB – Part B Clause 10 – List of the associated enterprises with whom the assessee

has international transactions S.No Particulars

a. Name of associated enterprise.

b. Nature of relationship with the associated enterprise as referred to in section 92 A(2).

c. Brief description of the business carried on by the associated enterprise.

..Form 3CEB..

Clause 11 – Particulars in respect of transactions in tangible property.▪ A - Purchase/sale of raw material, consumables or

any other supplies for assembling/processing/manufacturing of goods/articles from/to AE

S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Description of transaction and quantity purchased /sold

c. Total amount paid/received or payable/receivable in the transaction

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

..Form 3CEB..

B. If the assessee has entered into any international transaction in respect of purchase/sale of traded/finished goods, then:S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Description of transaction and quantity purchased /sold

c. Total amount paid/received or payable/receivable in the transaction

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

..Form 3CEB..

C. purchase/sale of any other tangible movable/immovable property or lease of such property, then:S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Description of property and nature of transaction.

c. Number of units of each category of movable/immovable property involved in the transaction.

d. Total amount/lease rent paid/received or payable/receivable in respect of each transaction of purchase/sale or lease provided/entered into:

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

e. Method used for determining the ALP

..Form 3CEB..

Clause 12 – Particulars in respect of intangible property▪ Purchase/sale/use of intangible property such as know-

how, patents, copyrights, licenses etc, then:

S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Description of intangible property and nature of transaction.

c. Total amount paid/received or payable/receivable for purchase/sale/use of each category of intangible property:

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

..Form 3CEB..

Clause 13 – Particulars in respect of providing services▪ In respect of services such as financial, administrative,

technical, commercial services, etc, then:

S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Description of services provided/availed of/from the AE.

c. Total amount paid/received or payable/receivable for the services provided/taken:

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

..Form 3CEB..

Clause 14 - Particulars in respect of lending or borrowing of money▪ Granting/receiving loans/advances to or from AE, then

S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Nature of financing arrangement.

c. Currency in which loan/advance granted/received.

d. Interest rate charged/paid in respect of each loan/advance.

e. Total amount paid/received or payable/receivable in the transaction :

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

f. Method used for determining the ALP

…Form 3CEB

Clause 15 – Particulars in respect of transactions in the nature of guarantee: ▪ Has the assessee entered into any international

transaction(s) in the nature of guarantee?

S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Nature of guarantee agreement.

c. Currency in which guarantee transaction was undertaken.

d. Compensation / fees charged / paid in respect of the transaction

e. Method used for determining the ALP

…Form 3CEB

Clause 16 – Particulars in respect of international transactions of purchase or sale of marketable securities, issue and buy back of equity shares, optionally convertible/ partially convertible/ compulsorily convertible debentures/ preference shares:

S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Nature of transaction

c. Currency in which guarantee transaction was undertaken

d. Consideration charged /paid in respect of the transaction

e. Method used for determining the ALP

…Form 3CEB

Clause 17 – Particulars in respect of mutual agreement or arrangement.▪ Mutual agreement or arrangement for the allocation or

apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any or more of such enterprises:S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Description of such mutual agreement or arrangement.

c. Total amount paid/received or payable/receivable in each such transaction:

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

…Form 3CEB

Clause 18 – Particulars in respect of international transactions arising out/ being part of business restructuring or reorganizations:

S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Nature of transaction

c. Agreement in relation to such business restructuring/reorganization

d. Terms of business restructuring/ reorganization

e. Method used for determining the ALP

…Form 3CEB

Clause 19 – Particulars in respect of any other transaction including the transaction having a bearing on the profits, incomes, losses, or assets of the assessee::

S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Description of the transaction

c. Total amount paid/received or payable/receivable in the transaction :

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

…Form 3CEB

Clause 20 – Particulars of deemed international transaction:

S.No Particulars

a. Name and address of the AE with whom the international transaction has entered into.

b. Description of the transaction

c. Total amount paid/received or payable/receivable in the transaction :

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

..Form 3CEB..

Scope of examination under section 92E of the Act

Annexure to Form 3CEB – Part C Clause 21 – List of the associated enterprises with whom the assessee

has entered into specified domestic transactions, with the following details: S.No Particulars

a. Name, address and PAN of the associated enterprise

b. Nature of relationship with the associated enterprise

c. Brief description of the business carried on by the associated enterprise.

…Form 3CEB

Clause 22 – Particulars in respect of transactions in the nature of any expenditure:

S.No Particulars

a. Name of person with whom the specified domestic transactionhas been entered into.

b. Description of transaction along with quantitative details, ifany

c. Total amount paid or payable in the transaction :(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

…Form 3CEB

Clause 23 – Particulars in respect of transactions in the nature of transfer or acquisition of any goods or services:

A. Has any undertaking or unit or enterprise or eligible business of the assessee transferred any goods or services to any other business carried on by the assessee?

S.No Particulars

a. Name and details of business to which goods or serviceshave been transferred

b. Description of goods or services transferred

c. Amount received/ receivable for transferring of such good or services

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

…Form 3CEB

Clause 23 – Particulars in respect of transactions in the nature of transfer or acquisition of any goods or services:

B. Has any undertaking or unit or enterprise or eligible business of the assessee acquired any goods or services from other business of the assessee?

S.No Particulars

a. Name and details of business from which goods or serviceshave been acquired

b. Description of goods or services acquired

c. Amount paid/ payable for acquiring of such good or services(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

…Form 3CEB

Clause 24 – Particulars in respect of specified domestic transaction in the nature of any business transacted:

Has the assessee entered into any specified domestic transaction(s) with any associated enterprise which has resulted in more than ordinary profits to an eligible business to which section 80IA(10) or section 10AA applies?

S.No Particulars

a. Name of the person with whom the specified domestictransaction has been entered into

b. Description of the transaction including quantitative details, ifany.

c. Total amount paid/received or payable/receivable in the transaction :

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

…Form 3CEB

Clause 25 – Particulars in respect of any other transactions:

S.No Particulars

a. Name of the associated enterprise with whom the specifieddomestic transaction has been entered into

b. Description of the transaction

c. Total amount paid/received or payable/receivable in the transaction :

(i) as per books of account.(ii) as computed by the assessee having regard to the

arm’s length price.

d. Method used for determining the ALP

Issues

AE for full year or part of the year? Disclosure - “Transaction (invoice) wise” or “Aggregate” ? Treatment of “goods in transit”? Treatment of “Work in progress”/ “Revenue accrued but not billed”? TDS of AE borne by taxpayer, then gross or net of TDS? Issues specific to SDT PAN of foreign AE Clause 24 – “Has the assessee entered into any specified domestic

transaction(s) with any associated enterprise which has resulted in more than ordinary profits to an eligible business to which section 80IA(10) or section 10AA applies?

Issues relating to eFiling Special characters not permitted No option for disclosure of explanatory notes

Issues

Revision of Form 3CEB?[Deloitte Consulting India Pvt. Ltd. vs. ACIT, ITA No. 7650 & 7651 / Mum/ 2013]

What if one has to qualify a Form 3CEB? How does that happen?

Voluntary adjustment in Form 3CEB. How to disclose? How to make appropriate disclosures in a E filing age? Best

practices? Some broad guidelines on flipside Form 3CEB? To create

awareness about AEs needing to file return and Form 3CEB in India?

Case Study

An Indian company (‘IndiCo’) is involved in manufacturing and distribution of electronic goods. Following facts about IndiCo is given below:

IndiCo is owned by three shareholders ▪ FNZCo. , New Zealand = 21 %▪ FSingCo., Singapore = 45%▪ InDelCo., Delhi = 33%▪ Mr.A = 01 %

Total 100%

FNZCo provides technology support to IndiCo for which it charges 1% of sales as royalty During the year under review, from FSingCo IndiCo imported raw material amounting to

Rs.20 cr. FSingCo also provided marketing support services to IndiCo for which it charges on a

cost plus markup basis. During the year, FSingCo provided marketing services to IndiCo amounting to Rs.75,50,000/-

Case Study

IndiCo has two manufacturing units, unit A and unit B. Unit A is section 80 IC unit and Unit B is a non 80IC unit.

During the year under review, Unit B manufactured certain spare parts and supplied the same to unit A, amounting to Rs.2 cr.

IndiCo has also paid director remuneration of Rs.50 L. Sales of IndiCo. in the subject year 250 cr.

Please fill Form 3CEB based on the above details

Open House?

Thank You

CA. Gaurav GargJGarg Economic

Advisors

Email: gaurav@jgarg.com

Mobile: +91 9899994934

www.jgarg.com