Tax and TP compliances in India are known to be very taxing! Especially, given its complexity, procedural aspects and the penal consequences for non-compliance.
This judgement of ITAT further emphasizes the need to evaluate the transfer pricing compliance requirements of non-resident taxpayers carefully. Basis this judgement, it is almost certain that there is no exemption from maintaining TP documentation/furnishing accountants report, regardless of the tax position adopted by the taxpayer.
Another important message from the said judgement is that the non-resident taxpayers would have to maintain a separate TP documentation in the format required under the Indian TPR. The taxpayers can not produce the TP documentation prepared by its Indian counterpart to meet their compliance burden.
Recently, in the Budget of 2020, the government announced relief to non-residents from their annual tax return compliances, wherein, the non-resident taxpayers are exempted from filing the annual tax return in India if –
- the nature of income is interest, dividend, royalty, fees for services etc.; and,
- the income was subjected to withholding tax in India as per the rate prescribed under the Indian Income-tax Act (and not the rate prescribed under the treaty).
While the relaxation was given with regard to the annual tax return, no such relaxation was announced towards the annual TPR compliance requirements of non-resident taxpayers.
All in all, it would be a prudent exercise on the part of non-resident taxpayers to re-examine their existing positions with regards to the annual TP compliances in India. It is always crucial and now even economical given the penal consequences for non-resident taxpayers to prepare and maintain a separate TP documentation. The documentation done by the Indian subsidiary can be a base for this purpose; however, it cannot be a substitute for maintaining TP document by the non-resident entity.