S. 9(1)(vii)/ Article 12: In order to constitute “technical services”, services catering to the special needs of the person using them must be rendered. The provision of a common facility is not “technical services”. Amount paid towards reimbursement of a common technical computer facility is not “fees for technical services”. Amount received by way of reimbursement of expenses does not have the character of income (March 6, 2017)
(i) The assessee is having its IT System, which is called the Maersk Net. As the assessee is in the business of shipping, chartering and related business, it has appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation etc. through these agents. Aforementioned three agents are appointed in India for the said purpose. All these agents of the assessee, including the three agents in India, used the Maersk Net System. This system is a facility which enables the agents to access several information like tracking of cargo of a customer, transportation schedule, customer information, documentation system and several other informations. For the sake of convenience of all these agents, a centralised system is maintained so that agents are not required to have the same system at their places to avoid unnecessary cost. The system comprises of booking and communication software, hardware and a data communications network. The system is, thus, integral part of the international shipping business of the assessee and runs on a combination of mainframe and non-mainframe servers located in Denmark. Expenditure which is incurred for running this business is shared by all the agents. In this manner, the systems enable the agents to co-ordinate cargos and ports of call for its fleet.
The Central Board of Direct Taxes (CBDT) has entered into four more unilateral Advance Pricing Agreements (APAs) on 6th February, 2017. The four APAs signed pertain to the Manufacturing, Financial and Information Technology sectors of the economy. The international transactions covered in these agreements include Contract Manufacturing, IT Enabled Services and Software Development Services. With this, the total number of APAs entered into by the CBDT has reached 130. The CBDT expects more APAs to be concluded and signed before the end of the current fiscal. The APA Scheme was introduced in the Income-tax Act in 2012 and the “Rollback” provisions were introduced in 2014. The scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and determining the prices of international transactions in advance.
“Secondary adjustment” means an adjustment in the books of accounts of the assessee and its associated enterprise to reflect that the actual allocation of profits between the assessee and its associated enterprise are consistent with the transfer price determined as a result of primary adjustment, thereby removing the imbalance between cash account and actual profit of the assessee. As per the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD transfer pricing guidelines), secondary adjustment may take the form of constructive dividends, constructive equity contributions, or constructive loans.
The provisions of secondary adjustment are internationally recognised and are already part of the transfer pricing rules of many leading economies in the world. Whilst the approaches to secondary adjustments by individual countries vary, they represent an internationally recognised method to align the economic benefit of the transaction with the arm’s length position.
S. 92A Transfer Pricing: Important law explained on meaning of expression “associated enterprise”. The mere fact that an enterprise has de facto participation in the capital, management or control over the other enterprise does not make the two enterprises “associated enterprises” so as to subject their transactions to the rigors of transfer pricing law Jan 20, 2017
(i) In order to invoke the transfer pricing provisions, and deal with the determination of arm’s length price, it is absolutely essential that the international transaction in question must be between the associated enterprises. It is perhaps the most basic aspect of the matter and foundational basis on which transfer pricing provisions are invoked. It is, therefore, wholly unreasonable to decline to deal with this issue on the ground that, in any event, the ALP adjustment in question is also not sustainable in law. The issue whether the transactions between two entities are transactions between the associated enterprises cannot be infructuous or academic just because the transactions are at arm’s length prices, though this proposition would be true the other way round i.e. the issue whether the transactions at arm’s length price or not would be infructuous in the event of enterprises not being associated enterprises. We are unable to see any merits in the approach adopted by the learned CIT(A). In our considered view, the first thing that needs to be adjudicated upon is whether or not the assessee and Blue Gems BVBA are associated enterprises. As we proceed to deal with this question, we may first take note of Section 92A.
Cyprus’s removal from the tax blacklist comes after India agreed to changes in the double taxation avoidance agreement in the India Cyprus tax treaty.
The Indian government has rescinded a notification blacklisting Cyprus, providing relief to investors who route their investments through the Mediterranean island nation.
The notification has been rescinded retrospectively with effect from 1 November 2013, the date on which Cyprus was listed as a “notified jurisdiction” for not providing financial information sought by the Indian government—as previously agreed upon by both the countries, according to the notification published in the official gazette on 14 December and as confirmed by income tax department officials.
Transfer Pricing adjustment has to be done only in respect of International Transactions with Associated Enterprises. The fact that the assessee has chosen entity level PLI to benchmark the AE transactions and that it has not maintained segmental accounts is irrelevant. If segmental accounts are not available, proportionate adjustments have to be made only in respect of the international transactions with Associated Enterprises (December 14, 2016)
(i) In all above appeals, this Court after hearing both sides upheld the view of the Tribunal that the transfer pricing adjustment has to be done only in respect of International Transactions with Associated Enterprises and not at an entity level. It may be pointed out that during the course of all the above appeals, the fact that two appeals had been admitted on the above issue were not pointed out.
(ii) Nevertheless, the distinction sought to be made by the Revenue is that the issue of non keeping of segmental accounts by the Assessee was not for consideration in the above cases which were dismissed, as in this case.
(iii) This very issue/question as raised herein was raised by the Revenue in Pedro Araldite Pvt. Ltd. (Supra). The question raised therein was as under:
“Whether on the facts and law the Tribunal was justified in directing AO/TPO to bench mark as AE transactions without appreciating (a) the Assessee itself in its transfer pricing study & report (TPSR) has chosen entity level PLI to benchmark the AE transactions; (b) the Assessee had itself failed to furnish audited segmental accounts and therefore, the TPO had rightly applied revised PLI at the entity level to determine the ALP?”
Article 5 DTAA: Law explained as to when a “power of attorney” holder of a non-resident can constitute a “dependent agent”, “fixed place of business” and a “permanent establishment” under Article 5 of the DTAA. The fact that the physical presence of the non-resident in India is nominal is irrelevant (Nov 8, 2016)
(a) The assessee claimed that it has executed the project of NHPC at Tanakpur between 27.01.2008 to 05.03.2008, so that the number of days is only 40 days. Hence, as per provisions, time may be containing in Article 5.2(j) of the DTAA between India and Swiss. According to the ld. AR, the assessee cannot be said to have any PE in India, since the project activity is less than six months. In our opinion, the above contention of the assessee’s counsel has no merit. In the present case, the business of the assessee has been conducted from the address of project coordinator, Mr. V. Subramanian and all correspondences relating to prospecting of client, participation in bids, correspondence with customers, signing of contract document, execution of the project and closure of the project etc. were initiated or routed through the business address of the company as above. Mr. V. Subramanian is the Power of Attorney holder from the company for all the projects, as the assessee was non-resident. He represented the nonresident assessee at site and he signed all the documents on behalf of nonresident assessee. Further, it is to be noted that :