The concept of arm’s length price is the cornerstone of transfer pricing. It provides that a transaction entered into between two or more entities of the same group shall not be influenced by the relationship of the transacting parties and therefore shall adhere to the generally accepted pricing and trade policies.
The concept of Deferred Tax is not a simple to understand and many get confused while applying it in the books. So, we shall try to go through simple and lucid manner to understand the whole concept and its application in the books through entries.
The relevance to determine existence of PE of a foreign enterprise earning income in India cannot be undermined particularly when it involves huge tax inflow to India Revenue and consequential TDS obligation on resident payer.
The recent practice of the Indian revenue authorities (hereinafter “IRA”) have been notoriously disallowing the claim of the taxpayer towards payment made for intragroup services, royalty and management fee. The ideology adopted by the IRA has been by rejecting the transfer pricing approach applied by the taxpayer in its study to benchmark the impugned transactions and substituting it with ‘CUP’ and thereby reducing the arm’s length price (hereinafter “ALP”) of the transaction as NIL.