Recent years have witnessed India being viewed as an ‘attractive and dynamic investment destination’ thereby observing increased presence of MNCs and consequential increase in the cross-border trade which has amplified the vigilance by the Indian Revenue in matters relating to transfer pricing (TP). The last round of TP audits conducted by the Indian Revenue which was completed in October 2009 experienced adjustments being made to almost 45% of the cases picked up for scrutiny all resulting in an aggregate TP adjustment of approx US$2.3 billion across the country.
The audit process is envisioned to undertake a detailed scrutiny of the cross-border intra-group transactions in order to ascertain their arm’s-length nature. However in practice instead of examining the underlying basis profitability is often adopted as the sole yardstick to judge the arm’s-length nature of transactions under an overall Transactional Net Margin Method...
