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Transfer pricing issues darting up from the valuation rules in GST

As GST widens its reach each day, the taxation complexities arising of such a mammoth revolution does not seem to cease. The new complexity slowly popping up, which could have future tax repercussions is the impact of ‘transfer pricing’.

Transfer pricing is an intra-charge made by one entity of an organization to another of the same organization. The thumb rule which applies while setting up of such a price is to have a balanced approach vis-a-vis the market price. Should the taxation department makes out that any attempt of evading tax using this clause would be subject to the taxes.

The new format of GST has a concept termed as ‘open market pricing’ for such intra-branch supplies.

The industry experts do not deny a clash between the new valuation rules under GST and the calculation of the transfer pricing, if not synchronized soon.

The open market pricing would be governed by the specific valuation rules for all such transactions, supplies whether domestic or international.

Though the mist revolves around whether the open market pricing will be subject to the existing transfer pricing rules or it will lead to having its own set of new provisions.

Multi-nationals are more prone to TP disagreements relating to the profits being earned by the branches and eventually passed to the parent organization head quartered overseas

Though the government is proactive to help and close such disturbed transactions by signing individual APAs [Advance Pricing Agreements], mostly with the multi-nationals to determine the transfer pricing method for a delegated period of time.

The GST framework exposes the transfer pricing to domestic transactions and the industry honchos sniff a steep rise in the quantity and quality of intricacies arising thereon.

GST Compliance

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