TAX ALERT Transfer Pricing - New Form 3CEB notified

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1 TAX ALERT Transfer Pricing - New Form 3CEB notified 19 June 2013

2 WHY DO WE HAVE A NEW FORM 3CEB? Backdrop of events and changes in TP legislation Taxpayers covered under the Indian Transfer Pricing regulations are aware of the annual reporting compliance vide an Accountants Report in Form 3CEB. However, there have been a sequence of events which have led to the introduction of the new reporting form: October 2010: Supreme Court ( SC ) in the case of Glaxo Smithkline recommended that the law must be amended to extend TP regulations to domestic transactions between related parties as well Finance Act 2012: Expansion in definition of International Transaction to include transactions relating to intangibles, capital financing, guarantees, receivables, business restructuring, etc. Finance Act 2012: Introduction of Domestic Transfer Pricing regulations for Specified Domestic Transactions from FY June 2013: Central Board of Direct Taxes ( CBDT ) issues notification* for revising the Accountant s Report in Form 3CEB aligning with the expanded definition of International Transactions and prescribing the format for reporting the Specified Domestic Transactions * Notification No. 41/2013/ F.No.142/42/2012-TPL issued by CBDT on 10 June 2013 Page 2 Page 2

3 KEY FEATURES OF THE NEW FORM 3CEB How would reporting change vis-à-vis erstwhile Form 3CEB? The following is a snapshot of the key changes in the new Form 3CEB vis-à-vis the old form: Sr. No Particulars Old Form 3CEB New Form 3CEB (effective from FY ) 1. Clauses 13 clauses 25 clauses 2. Coverage Only International Transactions International Transactions & Specified Domestic Transactions 3. Method of filing Manually with the tax officer Compulsorily to be filed electronically 4. Additional Notes Could be included at the option of the taxpayer 5. Aggregate Value of Transactions Not required to be separately disclosed No such option in the electronic version (The e-filing template for the new form is still awaited) The aggregate value of International Transactions & Specified Domestic Transactions is to be disclosed (in Part A of the new Form 3CEB) - This would enable streamlining references made to Transfer Pricing Officers Page 3 Page 3

4 ADDITIONAL REPORTING REQUIREMENTS What is the impact of the new clauses in Form 3CEB? International Transactions The clauses relating to International Transactions are contained in Part B of the new Form 3CEB The clauses in respect of international transactions have been aligned with the expanded definition of international transactions There are separate clauses for reporting the following transactions: Guarantees Issue of equity/preference shares & debentures Business restructuring/ reorganizations Deemed international transactions Specified Domestic Transactions The clauses relating to Specified Domestic Transactions are contained in Part C of the new Form 3CEB The clauses require reporting on the following lines: Details of Associated Enterprises with whom SDTs have been entered into Details of transactions in the nature of:- Any expenditure to person referred in section 40A(2)(b) Transfer or acquisition of any goods or services with reference to Section 80IA(8) or 80A(6) or 10AA (inter-unit transfers) Any business transacted which has resulted in more than ordinary profits with reference to Section 80IA(10) or section 10AA Any other transactions Page 4 Page 4

5 KEY TAKEWAYS The finer points & inferences from the new Form 3CEB Extended Scope of Reporting Since the new Form 3CEB has been aligned with the amended definition of Section 92B and also covers separate disclosures for Specified Domestic Transactions, the level of details to be provided by the taxpayers in order to manage their Transfer Pricing compliance are higher Disclosure of transactions of Issue of Shares Clause 16 which has been specifically introduced to report issue and buyback of equity & preference shares is indicative of the contention of the Revenue authorities to consider this transaction under the ambit of TP regulations. Taxpayers would need to ensure that the same comply with the Arms Length Standard. Penalty on non-reporting of transactions Considering the expanded scope of the new reporting format alongwith the stringent penalty implications for nonreporting of transactions, it would be advisable to report all international transactions and specified domestic transactions carefully and maintain contemporaneous documentation to justify the arm s length price of the same. Enhanced focus on detailed scrutiny of transactions The coverage of the new reporting form reveals that the tax authorities intend to obtain maximum possible information at the stage of filing of the Accountant s Report itself, so as to enable more concentrated efforts on particular transactions at the assessment stage. Page 5 Page 5

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