Provision of services:
Provision of services, including provision of market research, market development, marketing management, administration, technical service, repairs, design, consultation, agency, scientific research, legal or accounting service.
Business Restructuring:
Transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date.
More importantly, the Finance Act 2012 also amended the penalty provisions to provide that failure to report a transaction in Form 3CEB would be subject to a penalty of 2% of the value of transaction.
SKP Comments:
With the above amendments, the definition of international transactions is very wide and would cover anything under the sun. Few instances of transactions which were earlier not regarded as international transactions and were also not reported are:
Receipt of money towards share subscription / Issuance of shares:
Hitherto, transactions in respect of receipt of share subscription money were not reported by some of the taxpayers. However, with the extended definition, this would squarely be covered and would have to be reported. This is important especially for start up companies which may not have any other transaction other than receipt of share subscription money but now they would have to file Form 3CEB even for this single transaction.
Guarantees and deferred payments:
With the inclusion of guarantees and deferred payments in the definition of international transactions, taxpayers now will have the additional responsibility to benchmark financial transactions, a challenge by itself.
Others:
Transactions related to business restructuring irrespective of whether the income arising out of such restructuring is chargeable to tax in India or not are now covered under the definition of international transaction and hence would have to be reported. Similarly, on intangibles, creation / enhancement of marketing intangible through significant spent on advertisement & marketing has been regarded by tax authorities as a separate transaction. Taxpayers till now were partially successful in defending the said approach on the grounds that such expenses were incurred for selling their own products and was not an international transaction. The wide definition now also weakens the taxpayer’s defence.
Way Forward:
The international transaction now has a very wide connotation leaving taxpayers with hardly any opportunity to escape the clutches of transfer pricing. There is no doubt that the Revenue is bracing itself to follow an aggressive approach against taxpayers who have not been reporting international transactions due to ambiguity in the erstwhile definition. Taxpayers now need to be aware of the implications of the amendment and identify all possible international transactions including share transactions entered into with their associated enterprises. Further, such taxpayers would be required to satisfy the compliance requirements of filing Form 3CEB reporting all such transactions entered into with associated enterprises. |