Maulik Doshi Partner, Sudit K. Parekh & Co. March 2013

Transcription

1 Maulik Doshi CITC Partner, Sudit K. Parekh & Co. March 2013

2 Legislative Framework Report in Form No 3CEB Audit Procedures Practical Issues MRL

3 Legislative Framework Report in Form No 3CEB Audit Procedures Practical Issues MRL

4 Legislative Framework Associated Enterprise Legislative Framework Associated Enterprise International Transaction Specified Domestic Transaction

5 Legislative Framework (Contd.) Legislative Framework Income Tax Act,1961 Arm s Length price Documentation Accountant s report

6 Legislative Framework Report in Form 3CEB Audit Procedures Practical Issues MRL

7 Section 92E Accountant s Report Report from an accountant to be furnished by persons entering into international transactions / specified domestic transaction

8 Features of Form 3CEB Due date 30 th November No exemption from filing Form 3CEB - Even if international transactions of Re 1 Applies to both Residents & Non Residents (Foreign Companies) Applicable in case Specified Transaction > 5 crore Can be issued by Statutory auditor or any other CA in practice

9 Form 3CEB : Contents Form 3CEB Report Annexure Part A Part B

10 Form 3CEB : Report Para 1 *I/we have examined the accounts and records of.. (name and address of the assessee with PAN) relating to the international transactions entered into by the assessee during the previous year ending on 31st March,.

11 Form 3CEB : Report What happens in case of foreign companies No books / accounts available Reliance on the statutory audited results in case you are not the statutory auditor Reliance on management prepared accounts in case of different statutory year end

12 Form 3CEB : Report Para 2 In *my/our opinion proper information and documents as are prescribed have been kept by the assessee in respect of the international transactions entered into so far as appears from *my/our examination of the records of the assessee.

13 Form 3CEB : Report TP Auditor needs to check whether proper documentation maintained Documentation requirement prescribed in Sec 92 D read with Rule 10 D Exemption from preparing detailed documentation if the transaction value less than Rs. 1 crore More onus on auditor to satisfy whether adequate / appropriate documentation maintained

14 Form 3CEB : Report 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

15 Form 3CEB : Report True and correct v/s True and fair Emphasis on factual accuracies Foreign companies disclose the incapacity to gather all information Limit his scope work and review procedures to extent certified by him in Form 3CEB Most appropriate method Para of the GN

16 Form 3CEB: Annexure - Part A Clause 1 - Name of the assessee Clause 2 Address Clause 3 - Permanent Account Number Clause4 Status Clause 5 - Previous Year Clause 6 - Assessment Year

17 Form 3CEB: Annexure - Part B Clause 7 - List of associated enterprises Name of AE Nature of Relationship with AE (Section 92A) Brief Business Description Whether, enterprises with whom Deemed International Transaction are entered are reportable here? What if AE only for part of a year? What if the group shareholding not disclosed to auditor? Should get a certified copy of list of AE from management and should disclose that reliance is placed on the same? Business of the AE how should auditor verify the same?

18 Form 3CEB: Annexure - Part B Clause 8 - Transactions in tangible property Raw materials / consumables Finished goods Other tangible / movable / immovable property Quantitative details required multiple units? Goods in Transit? Gross/Net Excise Duty? Sale of RM not utilised for manufacturing Foreign Exchange? Freight? Invoice wise list of transaction in Form 3CEB?

19 Form 3CEB: Annexure - Part B Clause 9 - Transactions in intangible property Clause 10 Services Net of Service Tax / Withholding Tax? Management fees clause 10 v/s clause 12 Intangibles from reconstruction / restructuring Leases? Work in process / unbilled revenue for services

20 Form 3CEB: Annexure - Part B Clause 11 - Lending / Borrowing money Clause 12 - Mutual agreement or arrangement Loan amount or interest amount? Repayment to be disclosed? Foreign exchange fluctuations on Loan? Interest Free Loan / Guarantees / SBLCs / Letter of Comfort Deferred credit period? Cost sharing agreements v/s Intra-group services Common IT Costs / SAP / ERP expenses Reimbursement of expenses???

21 Form 3CEB: Annexure - Part B Clause 13 - Any other transactions Services rendered Free of cost? Dividend paid to AE / Shareholder? Reimbursement / recoupment of expenses? Goods received as sample / free of costs? Share transactions? Preference Shares? Bad debts?

22 Particulars required Part B Name and address of AE Description of transaction and Quantitative details Total Amount Paid / Received or Payable / Receivable As per books of Accounts Computed having regard to ALP Most appropriate Method used in determining ALP Additional details in case of loan Nature of financing agreement Currency of loan Interest rate

23 Legislative Framework Report in Form No 3CEB Audit Procedures Practical Issues MRL

24 Due considerations to Assurance Standards Independence (code of ethics) Appointment / Engagement formalities Communication to previous auditors/accountant issuing 3CEB Documentation Quality control standards

25 Planning Discussions with management Business understanding Execution Conclusion

26 Audit Procedures Identification of International Transaction Benchmarking of International Transaction Identification of AE s Verification of documentation prepared by the client

27 Review of previous year s financials Review AS -18 reporting Review of Form 3CD - section 40A(2)(b) Review Trial balance for similar name Debtors or creditors listing / grouping Identification of relationship of AE as per Sec. 92A Assertion of Completeness and Relationship

28 Reconciliation with AS -18 reporting and Section 40A(2)(b) Ledger Scrutiny Related party / AE Transaction account Various Check list to aid audit procedure Automation / audit tools wherever applicable Assertion of Correctness and Completeness

29 Objective Legislative Framework Report in Form No 3CEB Audit Procedures Practical Issues MRL

30 Revision of Form 3CEB No specific provision in the ITA or Guidance Note issued by ICAI No Judicial precedents Is it practically possible?

31 A Ltd. (India) AE B Ltd. (Singapore) Before Merger Post Merger (Approval from High Court on 30 th December 2010) AB Ltd. (India)

32 A Ltd. (India) and B Ltd. (Singapore) filed an application before High Court (HC) for Merger on 1 st August Application is pending before HC as on 30 th November 2010.

33 A Ltd. s International Transaction with its AE B Ltd. amounted to INR 16 crores. TP regulations were complied with by filing Form 3CEB on 20 th November 2010 by A Ltd. HC approved the merger on 31 st December 2010 with retrospective effect.

34 Company files income tax return and form 3CEB on due date. One transaction is missed out from reporting, corresponding to which an adjustment w.r.t ALP is also missed out while computing return of income.

35 As per section 139(5) of IT Act, ROI is revised considering the adjustment to ALP. Can form 3CEB be revised?

36 International transaction is missed out from reporting in Form 3CEB. Wrong details of AE furnished. Error w.r.t amount involved in transactions. TPO asking to file a revised 3CEB.

37 Modification of report in Form 3CEB? Reporting of Specified Domestic Transaction? Clubbing of transactions or separate reporting of each transaction?

38 Objective Legislative Framework Report in Form No 3CEB Audit Procedures Practical Issues MRL

39 MRL is Management Representation in respect of Accountant s Report under section 92E of the Income Tax Act, 1961 relating to International Transactions of the assessee

40 Broad contents of MRL: Declaration as regards information / documents required as per Rule 10D are contained in TP Study Report Declaration as regards completeness of international transactions and reconciliation with Audited Financial Statements

41 Ownership Structure International transactions Most Appropriate Method followed - if Cost Plus Method is used then details of costs included / not included while charging mark-up on costs is to be obtained from the client through MRL

42 MRL : Reimbursement of expenses We certify that reimbursements / recoupment of various expenses incurred by our overseas associated enterprises on our behalf and (as listed / noted in Annexure as the case may be) are made on actual cost basis. All the recharges made by the overseas associated enterprises onto the company are for expenses incurred by them for the benefit of and on behalf of the company, and the apportionment of expenses done by them is on a scientific basis which is most appropriate under the facts and circumstances of the case. Hence, based on facts and circumstances of the case & in law, the same could be said to meet with arm s length expectations.

43 Queries Maulik Doshi Sudit K. Parekh & Co. Ballard House, 2 nd Floor, Adi Marzban Path, Ballard Pier, Fort, Mumbai India. Contact no: id: maulik.doshi@skparekh.com