International Transfer Pricing in India | Savlana Init

Transfer Pricing · International Transactions

International Transfer Pricing — The OECD Framework in Indian Law.

India's transfer pricing framework is largely BEPS-aligned, but the domestic provisions, the treaty network and the Multilateral Instrument each add their own layer. All three must be read together.

International transfer pricing governs transactions between associated enterprises across national borders, and it is the area in which the Indian provisions most directly reflect the OECD framework. The arm's length standard under Section 92C mirrors Article 9 of the OECD Model Tax Convention. The six methods correspond to the OECD's transactional methods. The documentation framework under Rule 10D follows the OECD's three-tier approach of a Master File, a local file and a Country-by-Country report — the last of which is now filed in India under Sections 286, 92D and the BEPS Action 13 framework. And the advance pricing agreement regime under Sections 92CC and 92CD was designed explicitly to enable bilateral agreements under the mutual agreement procedure articles of India's tax treaties.

The Multilateral Instrument — the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting — has modified a number of India's bilateral treaties. The principal purpose test introduced through Article 7 of the Multilateral Instrument denies treaty benefit where obtaining it was one of the principal purposes of an arrangement or transaction, unless granting the benefit would be in accordance with the object and purpose of the treaty provision. Business restructurings, holding company reorganisations and royalty flows through treaty jurisdictions are all areas where the test is active. India opted into the principal purpose test and the permanent establishment modifications under Article 12 of the Instrument.

The Country-by-Country report is the provision that has most changed the information available to tax authorities. A group filing the report discloses, for each tax jurisdiction, the aggregate revenue, profit before tax, tax paid, tax accrued, stated capital, retained earnings, number of employees and tangible assets of all constituent entities. Indian tax authorities receive not only the reports filed in India but, through automatic exchange agreements, the reports filed by Indian groups' parent entities in their home jurisdictions, and those of foreign parent groups where the India entity is a constituent. That global view is then used to select cases, identify inconsistencies between local documentation and the CbCR data, and direct information requests. Planning and compliance must now account for what the CbCR shows, not just for what the local documentation says.

Our International TP Services

BEPS Impact Assessment

Assessment of how BEPS Actions 8-10 on intangibles and risk allocation, Action 13 on documentation, and the Multilateral Instrument affect your group's existing structure.

Principal Purpose Test Review

Analysis of treaty benefit claims across the group's holding and royalty structures against the principal purpose test introduced by the Multilateral Instrument.

Country-by-Country Report Preparation

Form 3CEAD filing, constituent entity notification in Form 3CEAC, and alignment of the CbCR data with local documentation and the Master File.

Master File Compliance

Preparation and filing of Form 3CEAA and the 3CEAB notification, with the group profile and group-level transfer pricing policy documented to the OECD standard.

Bilateral and Multilateral APAs

Applications for bilateral advance pricing agreements under India's treaty network, including pre-filing consultation and the competent authority process.

Business Restructuring Advisory

Transfer pricing implications of restructuring — conversion of full-fledged entities to limited-risk structures, centralisation of functions, and transfer of intangibles.

Hard-to-Value Intangibles

Application of the BEPS-aligned approach to intangibles whose value at the time of transfer is highly uncertain, including the ex-post outcome adjustment rule.

Permanent Establishment Intersection

Transfer pricing and attribution of profits where an international transaction gives rise to a permanent establishment — the two issues must be addressed together.

Our Process

Group Structure and Transaction Mapping

We map the group's legal and operational structure, intra-group transaction flows and treaty positions across all jurisdictions relevant to the Indian entity.

BEPS and MLI Exposure

We identify where the principal purpose test, the revised PE provisions and the BEPS risk-allocation rules alter the existing position.

Local and Group Documentation

Local file, Master File and CbCR are prepared consistently, with the CbCR data tested for consistency with local documentation before filing.

Certainty and Resolution

APA applications are pursued where transaction volumes and recurring risk justify the investment in multi-year certainty.

Monitoring and Update

The position is reviewed annually against changes in OECD guidance, new peer-country positions, and any audit risk signals in the CbCR data.

Why It Matters

✓Principal purpose test exposure mapped across holding and royalty flows

✓MLI modifications identified for each relevant treaty before relying on it

✓CbCR data consistent with local documentation — the two are now read together

✓Master File and CbCR filed on time with matching group-level disclosure

✓Business restructuring transfer pricing addressed before implementation

✓Hard-to-value intangibles treated under the correct ex-post adjustment rule

✓Bilateral APA pursued where the certainty justifies the process

✓Permanent establishment and profit attribution addressed as one question

Frequently Asked Questions

The most significant changes have been in documentation — the three-tier structure of local file, Master File and Country-by-Country report directly follows BEPS Action 13. BEPS Actions 8-10 on aligning profits with value creation have influenced how risk allocation and contractual arrangements are weighed against actual conduct, which is now central to functional analysis. And the Multilateral Instrument has introduced the principal purpose test into many of India's bilateral treaties.

Tax authorities use it as a high-level risk assessment tool to identify where profits and economic activity within a group are misaligned. Where the CbCR shows a jurisdiction with high profits and few employees or minimal tangible assets, it flags that jurisdiction for further attention. Indian authorities receive reports filed both domestically and by exchange from other jurisdictions, so the view is of the whole group rather than the Indian entity alone.

Article 7 of the Multilateral Instrument denies treaty benefit where it is reasonable to conclude that obtaining the benefit was one of the principal purposes of an arrangement or transaction, unless granting it would be in accordance with the object and purpose of the relevant treaty provision. It is a subjective test applied on facts and circumstances, and structures where treaty shopping or base erosion is the driver rather than commercial substance are at highest risk.

Where the group has recurring high-value transactions with one or more treaty partners, where the transaction type has historically attracted adjustment, and where the taxpayer is willing to provide the information the competent authority process requires. A bilateral APA binds both competent authorities, eliminating double taxation for the agreed period including rollback years, which is materially more valuable than the certainty a unilateral APA provides.

A restructuring that converts an entity from an entrepreneur to a limited-risk service provider, or centralises functions or transfers intangibles to a central entity, involves a transfer that must be priced at arm's length. The arm's length compensation for the restructured entity's relinquishment of profit potential, the cancellation of existing arrangements and the exit charge on transferred intangibles are all transfer pricing questions, and they are examined closely.

Yes. Chapter X applies to all international transactions with associated enterprises regardless of the tax rate in the other jurisdiction. Where the transaction is with an entity in a notified jurisdictional area under Section 94A, the deemed associated enterprise rule under Section 92A and additional withholding consequences apply. The absence of a treaty with the other jurisdiction also removes the advance pricing agreement route and the mutual agreement procedure.

Managing transfer pricing across multiple countries?

Tell us your group structure and transaction flows. We will map BEPS exposure, align local documentation with the CbCR, and pursue bilateral certainty where the volume warrants it.