Transfer Pricing Officer - Income Tax

Under

Income Tax regulations in India, all transactions between related parties must conform to the Transfer Pricing regulations. The concept of transfer pricing has been implemented to ensure all commercial transactions between different entities of a multinational group are transacted at an arm's length price. In case of any concerns with transfer pricing valuation, the Assessing Officer can refer the transaction to a Transfer Pricing Officer. In this article, we discuss the steps to be initiated by an Assessing Officer for referring assessments and the role of a Transfer Pricing Officer.

Role of Transfer Pricing Officer

The role of Transfer Pricing Officer commences after the receipt of a reference from an Assessing Officer. This role is restricted to the determination of the arm’s length price in relation to any particular international transaction referred to him by the Assessing Officer. If the officer discovers the existence of a few transactions which haven’t been referred to him by the Assessing Officer, the officer needs to address the matter with the Assessing Officer so that a fresh reference is received with regard to such transactions.

Reference to Transfer Pricing Officer

An Assessing Officer may refer to the computation of arm’s length price pertaining to an international transaction to a Transfer Pricing Officer. The officer, after considering the available information and documents, can by an order in writing, determine the arm’s length price for the transaction. The arms' length price should be approximately the same as the open market value of the commodity which forms the subject-matter of the commercial transaction.

Reasons to Refer

The basic requisite in making a reference is that an Assessing Officer has to satisfy himself that the taxpayer has entered into an international transaction with an

associated enterprise. Form 2ECB consists of all the necessary factual information with regards to international transactions. The primary details of such a transaction would normally be available in the accountant’s report. These details would help the Assessing Officer in arriving at a consensus as to whether a reference is necessary.

Directive of CBDT

The Central Board of Direct Taxes (CBDT) have come up with a directive stating that wherever the aggregate value of an international transaction exceeds Rs. 5 crores, the case must be scrutinized and reference must be addressed to the officer nominated in this behalf by the CBDT. Prior to making a reference, the Assessing Officer has to seek approval of the Principal Commissioner/Commissioner/Principal Director/Director. The threshold limit of Rs/ 5 crores will be reviewed based on the workload of the Transfer Pricing Officers periodically by the Department.

Rights and Obligations of Taxpayers

The Assessing Officer should provide the assessee with an opportunity of being heard before computing the income and completing the assessment. To ensure that all the references are attended to timely and effectively, a record of all such developments should be maintained in the prescribed format. Such a form will be an important database for future references.
An Income Tax Officer (ITO) has the right to examine the books, papers, records, and income tax returns of any employer, taxpayer, or other person that is subject to, or that the ITO believes is subject to, the provisions of the Income Tax Act which deal with verification of the accuracy of any return made or, if no return was filed, to ascertain the tax due under the Act. The assessee should provide full co-operation to the ITO during the examination.
The ITO may, for any reasonable purpose, compel an assessee to attend a hearing or examination and to produce any books, papers, records, and income tax returns in such person's possession or control. The person may be assisted or represented by a member of the Bar Council of India or a person who is a practising CA.
The records and other documents of any taxpayer, employer, or another person that is subject to, or that an ITO believes is subject to, the provisions of the Act shall be open to the ITO's inspection during business hours and shall be preserved for a period of eight years following the end of the assessment year to which the records or documents relate.
The ITO may examine under oath any person who presents the impression of having knowledge concerning any income that was or would have been assessed to taxation or any transaction which has the tendency to affect such income. The assessee should provide full support to the ITO during the course of the examination.

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Frequently Asked Questions

Common questions about Transfer Pricing Officer.

The role of a Transfer Pricing Officer is to determine the arm's length price for any international transaction referred to them by an Assessing Officer. Their responsibility is restricted to this specific task, and they cannot initiate a review of transactions not referred to them by the Assessing Officer.

An Assessing Officer can refer the computation of arm's length price pertaining to an international transaction to a Transfer Pricing Officer. The officer must satisfy themselves that the taxpayer has entered into an international transaction with an associated enterprise.

According to the directive from the Central Board of Direct Taxes (CBDT), wherever the aggregate value of an international transaction exceeds Rs. 5 crores, the case must be scrutinized and referred to the nominated Transfer Pricing Officer. However, this threshold limit may be reviewed periodically based on the workload.

Before making a reference, the Assessing Officer has to seek approval from the Principal Commissioner/Commissioner/Principal Director/Director. The officer should also provide the assessee with an opportunity to be heard before computing the income and completing the assessment.

The Assessing Officer can refer to Form 2ECB, which consists of factual information regarding international transactions, and the accountant's report, which would contain primary details of such transactions. These details would help the officer decide if a reference is necessary.

The assessee should provide full cooperation to the Transfer Pricing Officer during the examination. They have the right to be assisted or represented by a member of the Bar Council of India or a practicing Chartered Accountant.

The records and other documents of the taxpayer should be open to the Income Tax Officer's inspection during business hours and should be preserved for eight years following the end of the assessment year to which they relate.

No, if a Transfer Pricing Officer discovers the existence of transactions that have not been referred to them by the Assessing Officer, they need to address the matter with the Assessing Officer so that a fresh reference is received regarding such transactions.

Maintaining a record of all Transfer Pricing Officer references in the prescribed format serves as an important database for future references and ensures that all references are attended to timely and effectively.

The concept of transfer pricing has been implemented in India to ensure that all commercial transactions between different entities of a multinational group are transacted at an arm's length price, which should be approximately the same as the open market value of the commodity.