Worldwide transfer pricing reference guide 2014

India (continued)
Documentation requirements (continued)
A list of additional optional documents is provided in Rule 10D(3). The taxpayer is required to obtain and furnish an Accountant’s
Certificate (Form 3CEB) regarding adequacy of documentation maintained.
Documentation deadlines
The information and documentation specified should, as far as possible, be contemporaneous, and should be in existence on the filing
date of the income tax return, which is 30 November following the close of the financial year.
Although an accountant’s report must be submitted along with the tax return, the taxpayer is not required to furnish the transfer pricing
documentation with the accountant’s report at the time of filing the tax return. Transfer pricing documentation must be submitted to the
tax officer within 30 days of the notice during assessment proceedings.
Statute of limitations on transfer pricing assessments
Tax assessments (where a matter has been referred to the transfer pricing officer) are to be completed within 48 months of the close of
the financial year (1 April to 31 March). However, if the tax authorities determine that income has escaped assessment, an assessment
may be reopened within seven years of the close of the financial year.
Return disclosures/related party disclosures
The taxpayer needs to specify whether it is liable to file the accountant’s report as the due date for return filing depends on the same.
In accordance with Indian Accounting Standard 18, the company is required to disclose related party transactions in its financial
statements.
Transfer pricing-specific returns
Under Section 92E, an accountant’s report is required to be provided along with the tax return. The accountant certifies whether proper
documentation is maintained by the taxpayer.
Frequency of tax audit and transfer pricing scrutiny by the tax authority
Internal guidelines have been issued by the tax authorities, pursuant to which companies with related party transactions in excess
of US$3 million are being compulsorily scrutinized. Cases with lesser transactional values are also often picked up for audit. Audits
are carried out on an annual basis, and once a case is selected for transfer pricing audit, there is a high likelihood of recurring audit
thereafter.
In most cases, the tax authorities do not seem to have adopted a centralized or coordinated approach to audits, with officers in different
locations taking divergent positions on similar fact patterns. Substantial documentation is being requested in the course of audit
proceedings.
The likelihood of a general tax audit is characterized as high. Further, the likelihood that transfer pricing will be reviewed as part of a
general audit is also characterized as high, provided that the aggregate value of international transactions exceeds US$0.8 million.
Finally, if transfer pricing is reviewed as part of the audit, the likelihood that the transfer pricing methodology will be challenged is
also high.
The information technology, business process outsourcing, banking and pharmaceutical sectors have received particular attention.
Additionally, the tax authorities are increasingly scrutinizing intra-group services received and royalty payments made by Indian
taxpayers. The taxpayer is required to demonstrate that the intra-group services were actually rendered or the IP was actually provided,
and that such rendering or provision resulted in a tangible benefit to the taxpayer. In recent audits, there has also been a significant
focus on marketing intangibles. In many cases, brand promotion expenses incurred by Indian subsidiaries have been held as excessive
when compared with industry standards, and thus disallowed.
The tax authorities have sought an updated analysis using data that may not be available to the taxpayer at the time of the preparation of
contemporaneous documentation.
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