Transfer pricing law in India was introduced in April 2001 following an amendment to the Income-tax Act 1961 (ITA), which covered intra-group cross-border transactions and, from April 2013, the provisions were extended to specified domestic transactions between related enterprises. The law broadly aligns with the Organisation for Economic Co-operation and Development Guidelines on Transfer Pricing (the OECD Guidelines), and definitions of international transactions, documentation requirements, and associated enterprises are broad and expansive.

The law provides methods to compute the arm's-length price, extensive annual requirements of transfer pricing documentation and penal provisions for non-compliance. Although the law covers both income and capital transactions with similar rules, it only covers capital transactions that have an incidence of income that is enshrined in the charging provisions.

Section 92B of the ITA defines the term 'international transaction' to mean a transaction between two or more associated enterprises involving:

  1. the sale, purchase or lease of tangible or intangible property;
  2. the provision of services;
  3. cost-sharing arrangements;
  4. lending or borrowing money; or
  5. any other transaction having a bearing on the profits, income, losses or assets of such enterprises.

A relationship between associated enterprises can involve:

  1. the direct or indirect holding of at least 26 per cent voting interests;
  2. controlling the board of directors;
  3. common control;
  4. a significant dependence on intangibles, raw materials or consumables;
  5. supplier lending or guaranteeing a loan for the substantial percentage of total assets from one enterprise; or
  6. any other relationship of mutual interest.

The above definition includes deemed international transactions in third-party situations, particularly when the terms of the contract are determinable.

The 2001 transfer pricing provisions remained largely unreformed until 2012, when substantial changes were introduced. In particular, the definition of international transaction was retrospectively expanded to cover an array of other transactions, such as the purchase or sale of tangible and intangible assets, and capital financing. The definition of 'intangible property' was given a broad scope at a time when the debate on intangibles at the global level was gathering momentum (see Section IV).

A wave of reforms gathered momentum in 2013, 2014 and 2015, with the following changes introduced:

  1. the introduction of safe harbours;
  2. the option to use a 'sixth methodology';
  3. eligibility to seek a five-year unilateral or bilateral advance pricing agreement (APA), which subsequently covered rollback of up to four years;
  4. the use of multiple years of data for benchmarking purposes; and
  5. an Indian version of an interquartile range.

Although the law only applies if there is 'income arising from an international transaction' that is subject to the arm's-length principle, the debate regarding the applicability of the transfer pricing provisions to the issuance of shares or a capital transaction is now settled. The disclosure rules were, however, amended in 2013 to disclose such capital transactions. Dividends are not ordinarily subject to arm's-length pricing principles because they are an appropriation of profits and exempt from tax at the shareholder level.

Although Section 188 of the Companies Act 2013 prescribes the consent of the board of directors for specified related-party (domestic and international) transactions, there are no direct implications of not transacting at arm's length (such as deemed dividend implications), unlike in other jurisdictions. However, the ITA was amended to provide for secondary adjustments (see Section VIII).


Taxpayers are required to annually maintain extensive supporting information and documents relating to international transactions undertaken with their associated enterprises. Rule 10D of the Income Tax Rules 1962, which has been widely interpreted by the courts, prescribes that the documentation requirements may be broadly divided into two parts. The first part lists the following mandatory information that a taxpayer must maintain:

  1. information on the ownership structure (e.g., group profile and business overview);
  2. whether in writing, implied in action or acting in concert: the associated enterprises' contractual nature, terms, quantity, value, etc., of an international transaction; and
  3. relevant financial forecasts or estimates that form part of a comprehensive transfer pricing study.

The documentation includes functions performed; risks assumed; assets employed; details of relevant uncontrolled transactions; comparability analyses; benchmarking studies; assumptions; policies; details of economic adjustments; and explanations as to the selection of the most appropriate transfer pricing method.

The second part stipulates documentation authenticating the information and analyses provided in the first part.

This documentation must be contemporaneous, maintained for a period of eight years from the end of the relevant assessment year (i.e., nine years from the end of the relevant financial year) and presented to the tax authorities on request, at the audit, assessment or dispute resolution stage. The annual documentation has to be updated to reflect the latest financial data for comparability analysis and changes, if any, in transactions, as regards functions, assets, risks or terms of arrangements between associated enterprises.

A mandatory accountant's report for all international transactions between associated enterprises is to be obtained from an independent accountant, who would certify the value of international transactions (in accordance with the books of accounts) and state the arm's-length price based on the documentation and supporting information maintained by the taxpayer. The report has to be furnished in Form 3CEB by the due date of the tax return filing (i.e., on or before 30 November, following the close of the relevant tax year). The report requires the accountant to give an opinion on the proper maintenance of prescribed documents and information according to the rules, and to certify the correctness of an extensive list of transactions, including the methodology of the transactions. Failure to supply this report leads to a penalty of 100,000 rupees. A penalty of 2 per cent of the value of the international transaction may be levied for failure to maintain the prescribed documentary report of a transaction or for providing incorrect documentation.

India is committed to implementing the recommendations of Action 13 of the OECD Base Erosion and Profit Shifting (BEPS) Action Plan and consequently the ITA was amended in 2016 to introduce a requirement to furnish a master-file country-by-country report (CbCR) together with the transfer pricing documentation for the year ending 31 March 2017. The master file has to be filed electronically in Form 3CEAA. The key requirements are:

  1. the filing of Part A of the master file in Form 3CEAA is applicable to every constituent entity operating in India, whether it has its parent entity resident in or outside India; and
  2. regarding the threshold for Part B of the master file in Form 3CEAA:
    • the consolidated revenue of the international group according to the consolidated financial statements for one accounting period must exceed 5 billion rupees;
    • the aggregate value of international transactions of the constituent entity during the accounting period must exceed 500 million rupees; or
    • the aggregate value of international transactions in respect of purchase, sale, transfer, lease or use of intangible property during the accounting period, must exceed 100 million rupees.

The master file in Form 3CEAA has two parts: Part A specifies the generic information about the constituent entities of a multinational enterprise (MNE) group operating in India; and Part B provides a high-level overview of the MNE group's business structure, operations, transfer pricing policies, etc.

Where an international group has multiple constituent entities operating in India, the group may designate one of its constituent entities as an alternate reporting entity to fulfil the requirement of filing Form 3CEAA on behalf of the group. Since the final CbCR rules were notified on 31 October 2017, the deadline for filing for financial year 2016–2017 was extended to 31 March 2018. Strict penalties have been prescribed for failing to maintain CbCR documentation.


i Pricing methods

The term 'arm's-length price' is defined under Section 92F of the ITA and applies to transactions between persons other than associated enterprises in uncontrolled conditions. The following methods have been prescribed by Section 92C of the ITA for the determination of the arm's-length price:

  1. the comparable uncontrolled price (CUP) method;
  2. the resale price method (RPM);
  3. the cost-plus method;
  4. the profit split method;
  5. the transactional net margin method (TNMM); and
  6. an unspecified method (the unspecified methodology was introduced as from financial year 2011–2012).

On the choice of methodology, the statute prescribes the use of the 'most appropriate methodology'. The transfer pricing rules on this choice of methodology are in line with the OECD Guidelines, except that the methodologies are ranked in a hierarchical manner. Having said that, it is appropriate for taxpayers to choose the most appropriate methodology. If, however, the Department of Revenue believes that the choice of methodology deemed most appropriate by the taxpayer does not arrive at the correct arm's-length price, it may disagree and recalculate the arm's-length price using an alternative methodology. Choice of methodology is the most vexed issue, given the inconsistencies in interpretation and in the policy stance on transactions that involve intangibles.

In the initial years of transfer pricing audits, the appellate authorities took a liberal view and allowed the default use of TNMM as the most appropriate methodology because of the difficulty of obtaining comparable data for benchmarking unique or complex transactions in which the choice of methodology had become debatable. Although there is a tendency on the part of the tax authorities to use the CUP method, inadequate availability of comparable data with significant economic adjustments has resulted in taxpayers rejecting CUP; furthermore, the taxpayers' view on this has also found acceptance in several tax tribunal judgments. In the context of research and development (R&D) centres, the tax authorities' tendency to use the profit split method was put to rest by issuing administrative guidance, by virtue of which R&D centres were characterised either as 'full-risk entrepreneurial' R&D centres, cost-sharing arrangements or simple contract R&D centres. Choosing the most appropriate methodology in these situations is dependent on the characterisation of the R&D centre, which is a fact-based exercise. Lately, use of the residual profit split method has been gaining prominence. Tax tribunals and courts have recently been setting aside assessments and orders of lower authorities that do not conform to the methodology used by the Department of Revenue.

ii Authority scrutiny and evidence gathering

In accordance with prevailing internal administrative guidelines, taxpayers are subject to risk-assessment rules (which are not made public) before being referred to a transfer pricing officer (TPO) for assessment or audit Cases are selected for detailed audit by the issue of a notice under Section 143(2) of the ITA to the taxpayer within six months of the end of the financial year of the compliance calendar. There is a statutory requirement for the assessing officer (AO) to refer relevant transactions under Section 92CA of the ITA to the TPO for an audit, with prior approval of the jurisdictional commissioner, such that only select cases or transactions are audited. Although the criteria are not defined, a past history of audits that resulted in an adjustment, low margins, etc. form a basis for cases being picked out for assessment audit. Typically, the TPO specifies the records, documents and details required to be produced for an audit. The TPO has wide assessment powers requiring the production of necessary evidence and material information to support the computation of the arm's-length price of international transactions. Audit cases are scrutinised in detail to ensure that all relevant factors, such as appropriateness of the transfer pricing method applied and correctness of data, are verified. After taking into consideration all the information available, the TPO is required to determine the arm's-length price.

TPOs are vested with powers of inspection, discovery, enforcing attendance, examining a person under oath and compelling the production of books of account and other relevant documents and information as part of the assessment function. These powers were further extended, from 1 June 2017, to include conducting surveys for spot inquiries, verification for subsequent investigations, and collation of data. These powers are enshrined in Sections 133A and 133B of the ITA, which empower the TPO to enter any premises to inspect such books of accounts, cash, valuables or any information as the TPO may require that may be useful or relevant for the proceedings. The investigative powers of the tax authorities in general, including in relation to transfer pricing law, are discussed in Section VI.

A penalty of 2 per cent of the value of the international transaction has been provided in Section 271AA of the ITA, both for failure to report transactions and for furnishing incorrect documentation at the audit stage.


The definition of international transaction is laid out in the Section 92B of the ITA. The explanation to the law specifically covers the expression 'intangible property' to include:

  1. marketing-related intangible assets, such as trademarks, trade names, brand names and logos;
  2. technology-related intangible assets, such as process patents, patent applications, technical documentation (e.g., laboratory notebooks) and technical know-how;
  3. artistic-related intangible assets, such as literary works and copyright, musical compositions, maps and engravings;
  4. data processing-related intangible assets, such as proprietary computer software, software copyrights, automated databases, and integrated circuit masks and masters;
  5. engineering-related intangible assets, such as industrial design, product patents, trade secrets, engineering drawing and schematics, blueprints and proprietary documentation;
  6. customer-related intangible assets, such as customer lists, customer contracts, customer relationships and open purchase orders;
  7. contract-related intangible assets, such as favourable suppliers, contracts, licence agreements, franchise agreements and non-compete agreements;
  8. human capital-related intangible assets, such as a trained and organised work force, employment agreements and union contracts;
  9. location-related intangible assets, such as leasehold interest, mineral exploitation rights, easements, air rights and water rights;
  10. goodwill-related intangible assets, such as institutional goodwill, professional practice goodwill, personal goodwill of professionals, celebrity goodwill and general business going-concern value;
  11. methods, programs, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists or technical data; and
  12. any other similar item that derives its value from its intellectual content rather than its physical attribute.

The definition of the term 'international transaction' was broadened retrospectively in 2012 to cover transactions for the purchase, sale, transfer, lease or use of intangible property. The definition expanded to practically cover every direct or indirect transaction in relation to intangible property. The disclosure requirements for international transactions relating to intangibles changed in 2017, when it was made mandatory for taxpayers to disclose details of such transactions with an aggregate value exceeding 100 million rupees in respect of the lease or use of intangible property. These details are to be filed by the taxpayer in Form 3CEAA and be furnished to the Director General of Income Tax (Risk Assessment) on or before the date on which the taxpayer is due to furnish its tax return.

The debate on intangibles in general, and marketing intangibles in particular, has reached the Supreme Court. It started with the tax authorities carrying out, on the basis of the 'bright-line' theory, mechanical adjustments to advertising, marketing and sales promotion expenses (incurred towards third parties) in excess of comparators. These adjustments were held to be invalid by the first appellate forum, the Tax Tribunal (special bench in LG Electronics as the lead case); instead what was allowed for adjustment were expenses that were not directly related to sales activity (without spelling out the concept of non-routine brand promotion expenditure). The Delhi High Court (in Sony Ericsson as the lead case) granted further relief by negating the bright-line theory and prescribing as a basis the use of a methodology and adjustments, etc. Under the same High Court in the Maruti-Suzuki case, and subsequently in Whirlpool, a manufacturer and distributor struck down the entire adjustment on the grounds that there was no international transaction and hence the question of adjustment was academic. All the cases are currently before the Supreme Court awaiting a final outcome.

The tax authorities have, in general, maintained their position on adjustments due to intangibles, and although a formal policy as to how to undertake such adjustments has not been spelled out, an informal guideline (using the intensity-adjustment principle) is used by TPOs to carry out adjustments on marketing intangibles. Similarly, India has not specified any formal policy in response to the principles on the development, enhancement, maintenance, protection and exploitation of intangibles2 articulated in the BEPS Action Plan other than the 2017 disclosure requirements. The CbCR requirement now mandates listing all multinational enterprise group entities engaged in the development of intangibles and the description of a multinational enterprise's strategy (transfer pricing policy) for development, ownership and exploitation of intangible property.

Well before the BEP initiative was under way, given the growing disputes over R&D captives, the Central Board of Direct Taxation (CBDT) issued guidelines3 to TPOs with regard to characterisation of R&D units based on functions, assets and risk assumed. A set of qualitative criteria was laid out to drive decision-making on characterisation with an emphasis on the substance of an arrangement and not the contractual arrangement between the centre in India and its foreign associated enterprise. This guidance has classified R&D centres under the following three categories:

  1. entrepreneurial in nature;
  2. based on cost-sharing arrangements; and
  3. undertaking contract R&D.

Based on these categories, suitable methodology is prescribed as either the profit split method or cost-plus method, and the most appropriate methodology is forensically applied.


Unlike in other jurisdictions, there is no mechanism in India for the settlement of transfer pricing disputes with the tax authorities. For settlements, safe-harbour provisions, and unilateral and bilateral APA mechanisms are viewed as means to mitigate risks in advance, and the mutual agreement procedure (MAP) under the treaty is considered, post-adjustment, to settle disputes. The rollback provision under an APA also enables settlement of past disputes given its binding nature.

In a move to reduce litigation and boost investor confidence, India introduced unilateral, bilateral and multilateral APAs with effect as of 1 July 2012. The APA guidelines were finalised in the latter part of 2012 and eligible taxpayers were entitled to apply for APAs for transactions from 1 April 2013. Further, India's APA programme has matured and received an overwhelming response in the past six financial years (ending 31 March 2019), with over 1,000 applicants. As part of the APA process, taxpayers are required to file an annual compliance report containing detailed information of actual outcome to demonstrate compliance with the terms of the APA.

The APA programme allows multinational enterprises to agree inter-company prices or margins in India (and overseas), methodology, etc. As at March 2019, India had concluded 271 APAs of which 240 are unilateral and 31 bilateral APAs.4 APAs cover various transactions, such as software services, IT-enabled services, intra-group payments, business support services commission or indent. The bilateral APA process covers important jurisdictions, such as the United States, the United Kingdom, Japan and the Netherlands.

The MAP has often been viewed as a credible resort for settling transfer pricing-related disputes. Under the MAP process, the Indian competent authority allows the foreign associated enterprise, a resident of the treaty country, to submit its MAP plea via its country's competent authority. India has concluded several MAPs with its treaty partners, including the United States, United Kingdom and Japan. Under various administrative directions, tax demands arising out of adjustments with foreign associated enterprises that are residents of the United States, the United Kingdom, South Korea and Denmark are frozen until the MAP process is concluded, subject to the submission of suitable bank guarantees. If, however, a rollback APA is sought along with resolution of the transfer pricing-related dispute, that demand shall not be frozen under the specified treaty provision.

Until recently, India took the position that, unless the relevant treaty contained an Article 9(2), it would not settle disputes through a MAP. By adopting this stance, India did not resolve transfer pricing disputes with several of its treaty partners, including Singapore, South Korea, France and Germany. That position has, however, been reversed by CBDT, vide the press release dated 27 November 2017. India has received most MAP requests from the United States, the United Kingdom, Japan and Canada. Over 200 cases between the United States and India have been resolved under MAPs. The India–United States bilateral APA process was launched in 2016.

India introduced safe harbour rules in 2009 for resolving disputes for specific industries or transactions, particularly in the area of IT-enabled services, software development R&D, exports of goods in the auto ancillaries industry, inbound offshore loan or debt transactions, etc. The 2009 safe harbour limits were set with a higher threshold, and as a result there were fewer takers in the initial years. The safe harbour limits were revised downwards and tweaked further in 2013 to encourage taxpayers to avail of safe harbour, particularly for inbound low value-added services. The tax authorities will accept the transfer price declared by taxpayers opting for a safe harbour within the limits set out without question or scrutiny. The latest guidelines on coverage of transaction limits and procedures were set out in Rule 10TA and Rule 10TG. The 2013 Amendment has restricted the scope of safe harbours to relatively smaller software and IT-enabled services, and lent greater clarity to the 'employee cost' definition and the concepts of operating income, profit margin, etc.


There is currently no specific concept of a 'transfer pricing investigation' in India, other than the audit or assessment process, as discussed in Section III.

The tax authorities, however, have broad powers for assessment (e.g., reopening of past-year assessments, investigations), under the following sections of the ITA:

  1. Section 143 – for regular audit or assessment;
  2. Section 144 – best-judgement assessment, where a taxpayer does not file a tax return or fails to comply with requests from the tax authorities;
  3. Section 147 – reassessment of income escaping assessment, where the tax authorities have reason to believe income chargeable to tax has escaped assessment; and
  4. Section 153A – assessment or reassessment in situations of search and seizure, where the tax authorities have reason to believe that the taxpayer's accounts do not reflect the true picture or the taxpayer has failed to produce the accounts.

In the course of an assessment, audit or reassessment, the TPO is empowered to carry out an adjustment if it forms an opinion that:

  1. the price charged in an international transaction is not at arm's length;
  2. any information and documentation relating to an international transaction has not been maintained by the taxpayer;
  3. the information or data used in computation of the arm's-length price is not reliable or correct; or
  4. the taxpayer has failed to furnish requested information or documentation within the specified time.

It can arrive at an arm's-length price on the basis of information or documentation gathered over the course of assessment or audit. A show-cause notice has to be issued to the taxpayer to explain the basis of the adjustment and then (revised) benchmarking has to be performed to justify the adjustment. The order of the TPO shall be binding on the AO, who shall incorporate it in the taxpayer's main assessment and issue a draft order.

The transfer pricing assessment or audit is mandatorily required to be completed by 31 January, and the AO is expected to incorporate the TPO's order for an adjustment within the next two months, by 31 March, such that the period does not exceed 36 months from the end of the relevant tax year.

The primary onus is on the taxpayer to maintain documentation to demonstrate that the price charged in an international transaction complies with the arm's-length price, and the method followed to ascertain the price is the most appropriate method. The taxpayer discharges this onus by maintaining the documentation and thereafter the onus shifts to the tax authorities. In the event that the tax authorities disagree with the taxpayers' view and seek additional explanation, the burden of proof again shifts (to the taxpayer) to prove why the method applied by the taxpayer is correct.


Once the TPO proposes an adjustment, it directs the AO to issue a draft assessment within the time limit described above. It is mandatory for the AO to issue a draft assessment before issuing the final order, and at that point the taxpayer has the following options:

  1. accept the draft assessment and adjustment proposed;
  2. file an objection before the dispute resolution panel (DRP) by communicating its decision to the AO within 30 days of the draft assessment; or
  3. not file an objection and instead, allow the TPO or AO to convert the draft assessment into a final order and thereafter file an appeal before the Commissioner of Income Tax (Appeals) (the Appeals Commissioner) within 30 days of the final order.

The DRP as an alternative dispute resolution mechanism was introduced in law by the Finance Act 2009 to expedite resolution of disputes in transfer pricing. Once the taxpayer chooses to opt for the DRP process, no tax demand can be raised, given that the assessment is in a draft form at that stage. the DRP objections have to be filed within 30 days of the date of the draft assessment. The DRP, comprising three commissioners, must decide the taxpayer's objections within nine months of the date of reference by issuing written directions to the AO. These directions are binding on the AO, and it is expected to incorporate these in the final order. The DRP has wide powers to examine additional evidence, inquire further into the case and, by a majority, issue directions to confirm, enhance or reduce the adjustment. It cannot compromise or settle a dispute and its powers to adjudicate are limited. The directions of the DRP are binding on the TPO and the AO. Alternatively, if the taxpayer does not communicate its decision to refer the draft assessment to the DRP within 30 days, the AO shall finalise the assessment without modification of the draft. In summary, the tax demand is finalised only upon the AO's passing of the final order, which is appealable to the Appeals Commissioner (if the taxpayer does not file an objection) and to the Income Tax Appellate Tribunal (ITAT), if it is passed pursuant to the DRP directions.

The taxpayer has the right to appeal to the ITAT within 60 days of the final order pursuant to DRP directions or the order of the Appeals Commissioner. As the ultimate fact-finding authority, the ITAT examines the dispute afresh and adjudicates on most transfer pricing disputes. It has broad powers to decide questions of law or facts, including setting aside an assessment or restoring the order of the TPO or AO for fresh examination, and including admitting additional evidence.

Select ITAT orders travel to the jurisdictional High Court and from there to the Supreme Court. The High Court has to be satisfied that a 'substantial question of law' arises from the ITAT order before admitting an appeal.

Landmark cases

The Bombay High Court in the Vodafone case

An Indian subsidiary entity of Vodafone and Shell issued shares to its foreign associated enterprise. The TPO formed an opinion that the shares were issued at an undervalued price. Hence, they treated the shortfall in the premium on the issue of shares as 'income chargeable to tax' in the hands of the Indian entity, and made a transfer pricing adjustment. The TPO held the shortfall in the premium to be a loan given by the Indian subsidiary to its foreign associated enterprise. Hence, notional interest on arm's-length pricing of the deemed loan was charged as interest income by way of a secondary adjustment.

The issue before the court (under a writ jurisdiction) was whether the alleged shortfall in share valuation constituted income in the hands of the Indian entity, and was hence chargeable to tax.

The High Court held that transfer pricing provisions allow for recalculation of the arm's-length price to determine the real value of the transaction, but not recharacterisation of the transaction. Hence, there was no question of the transaction resulting in income and there could be no transfer pricing adjustment.


To align with the BEPS, India has amended the ITA to provide for secondary adjustments. Secondary transfer pricing adjustments are applicable for primary adjustments if made in one of the following situations:

  1. a voluntarily adjustment by the taxpayer;
  2. an adjustment made by the TPO and accepted by the taxpayer;
  3. an adjustment determined by an APA;
  4. an adjustment determined pursuant to the safe-harbour rules; and
  5. an adjustment resulting from a MAP;

If the sums arising as a consequence of a primary adjustment are not repatriated to India within the prescribed period, the amount would be deemed an advance by the Indian associated enterprise and imputed interest would be payable on the advance, according to the arm's-length price standard. A secondary adjustment has to be applied where the primary adjustment is above 10 million rupees and it relates to a primary adjustment for the fiscal years 2015 to 2016 onwards. The adjustment shall also apply in situations where the tax payer is seeking rollback under the APA process.

For adjustments, the penalty is either 50 per cent of the adjustment (for under reporting) or 200 per cent of the adjustment for misreporting.


i Diverted profits tax and other supplementary measures

India amended the ITA in 2012 to counter offshore indirect transfers of shares with underlying assets in India. Section 9(1)(i) provides that if any entity registered outside India derives its value from an entity situated in India in the form of shares or interest, then the former entity is deemed to be situated in India and liable for capital gains tax. Accordingly, transfers of interest in the foreign entity would attract capital gains, subject to exceptions and valuation rules.

In line with the OECD's BEPS Action Plan on taxing e-commerce transactions, India in 2016 introduced an 'equalisation levy' to provide for a charge of 6 per cent in the form of tax from amounts paid to a non-resident not having any permanent establishment in India, for specified services, which include business-to-business services such as online advertising and provisions for digital advertising space. In 2018, India introduced the concept of the 'significant economic presence' test to tax non-residents on profits generated through non-PE traditional rules under applicable double-tax treaties, although its implementation has been deferred following treaty amendments resulting from the OECD BEPS multilateral process. In April 2019, India issued a public consultation document on profit attribution to PEs, introducing the concept of the 'fractional formulary approach' to attributing profits to PEs.

ii Double taxation

CBDT has clarified that MAP and bilateral APA applications can be applied by any taxpayer operating in India (regardless of residence) with which India has a double-taxation avoidance agreement even though the agreement does not contain provisions for corresponding adjustment in matters of transfer pricing.

iii Consequential impact for other taxes

Indirect tax implications (under goods and service tax and customs tax) with regard to transfer pricing adjustments are independent. Hence, a related-party transaction may be subject to tax and customs adjustments. The Goods and Services Tax and customs law contain independent concepts of related-party transactions.


As an active member of the G20, India has signed multilateral instruments, is a key contributor to the OECD's BEPS initiative and has actively pursued changes in its domestic law policy. A significant step has already been taken to adopt the OECD's recommendations of mandatory filing of a master file and a CbCR. India introduced General Anti-Avoidance Rule provisions on 1 April 2017 and concluded revised tax treaties with Mauritius, Singapore and Cyprus with the 'limitation of benefits' clause, aligned to these rules and the 'principal purpose' test. India is presently reviewing its Direct Tax Code and a working paper on the new code is expected to be released in the later part of 2019.


1 Mukesh Butani is a managing partner at BMR Legal Advocates. The author would like to thank Surekha Debata for her assistance in writing this chapter.

2 Known as DEMPE functions.

4 'Indian Advance Pricing Agreement regime moves forward with signing of 18 APAs by CBDT in March, 2019', Public Information Bureau, Government of India (Ministry of Finance), http://pib.nic.in/newsite/PrintRelease.aspx?relid=189634.