HC rules in favor of Vodafone in Transfer Pricing case.

Bombay High Court ruled in favor of Vodafone in transfer pricing dispute of Rs.3200 crore regarding under-priced valuation of shares. There are atleast 20 other companies that are facing the same disputes and the ruling of Bombay High Court in favor of Vodafone gives relaxation to these 20 companies to the some extent.

Vodafone India (Subsidiary) issued the right share at share premium to its UK based Parent Company ( Vodafone Group Plc) and method for the valuation of share was duly approved by RBI. However tax department disputed on valuation at which Vodafone India had issued shares to its UK based parent company, the tax department used a methodology called discounted tax flow to arrive at a higher value per share. Department has accused Vodafone India for violating transfer pricing regulations by claiming that the value of right share had been under-priced which is meant the Parent company ( Vodafone Group Plc) paid less to get a higher stake in Vodafone India and the same is liable to tax.

Now the question arises whether the issuance of shares gives rise to income under transfer pricing regulation? Continue reading

Tolerable limit for determination of Arm Length Price changed

Tolerable limit for determination of Arm Length Price with respect to international transactions and specified domestic transaction has been notified separately for “wholesale trading” and “cases other than wholesale trading” at the rate of 1% and 3% respectively.

The “arm’s length principle” of transfer pricing states that the amount charged between related parties for a given product must be the same as if the parties were not related. An arm length price for a transaction is therefore what the price of that transaction would be on the open uncontrollable market. For commodities, determining the arm’s-length price can sometimes be as simple a matter as looking up comparable pricing from non-related party transactions, but when dealing with proprietary goods and services or intangibles, arriving at an arm’s length price can be a much more complicated matter. Continue reading