Income Tax Domestic Cost Sharing/Centralized Cost Agreements Some Points on Section 40A(2)

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers Income Tax--Penalty Domestic Cost Sharing/Centralized Cost Agreements--Some Points on Section 40A(2) Srivatsan Ranganathan Group charges and push down of costs, how far it is this vulnerable or amenable to section 40A(2), a section which remains more like a toothless Tiger. The author has discussed some interesting standpoints on this section its scoping and the way forward for this section. 1. The bone to pick There are a number of Indian companies who have turned into multinational enterprises in recent times. India is also emerging as a preferred centre for centralizing certain functions besides becoming the global capacity centres (GCC) for many Indian/foreign conglomerates. It is imminent that most of these conglomerate groups would have centralized their overall management, control, treasury, finance, IT, HR, quality assurance and various other functions as well within an in house captive entity. This captive entity would then be performing the required corporate functional services in two perspectives. (a) Individual business to business customized/need basis. (b) As a common pool services by standardizing certain service offerings to ensure overall compliance/control and reap economies of scale. The issue of cross border organizational services/management fees has been the most litigated topic in International Transfer pricing. 2. Enter section 40A(2)--Toothless Tiger It is equally important on domestic transfer pricing scenario as well though on paper it appears to be a toothless Tiger. Section 40A(2) empowers an assessing officer to make additions in certain related party transactions. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Penalty

Domestic Cost Sharing/Centralized Cost Agreements--Some Points on Section 40A(2)

Srivatsan Ranganathan

Group charges and push down of costs, how far it is this vulnerable or amenable to section 40A(2), a section which remains more like a toothless Tiger. The author has discussed some interesting standpoints on this section its scoping and the way forward for this section.

1. The bone to pick

There are a number of Indian companies who have turned into multinational enterprises in recent times. India is also emerging as a preferred centre for centralizing certain functions besides becoming the global capacity centres (GCC) for many Indian/foreign conglomerates.

It is imminent that most of these conglomerate groups would have centralized their overall management, control, treasury, finance, IT, HR, quality assurance and various other functions as well within an in house captive entity. This captive entity would then be performing the required corporate functional services in two perspectives.

(a) Individual business to business customized/need basis.

(b) As a common pool services by standardizing certain service offerings to ensure overall compliance/control and reap economies of scale.

The issue of cross border organizational services/management fees has been the most litigated topic in International Transfer pricing.

2. Enter section 40A(2)--Toothless Tiger

It is equally important on domestic transfer pricing scenario as well though on paper it appears to be a toothless Tiger. Section 40A(2) empowers an assessing officer to make additions in certain related party transactions.