The Hindu Business Line : Draft rules soon on transfer pricing under Cos Act

THE Ministry of Company Affairs is working on a set of draft rules on transfer pricing in the context of related party transactions under the Companies Act.

"The income tax, customs and excise laws already prescribe transfer pricing guidelines. To supplement the existing guidelines under other regulations, these guidelines are required. In fact, even the Cost Audit Record Rules stipulate norms for related party transaction," official sources said.

The draft rules will be based on the recommendations of the Government-appointed expert group on the same. The group had submitted its report in 2002, voting in favour of a regulatory regime under the Companies Act to check abuses of transfer pricing.

The expert group comprised a nominee each from the Indian Institute of Management, the Central Board of Direct Taxes, the Central Board of Excise and Customs, and the Tariff Commission. Further, a representative each from IDBI, the three professional institutes of chartered accountants, company secretaries and cost accountants as well as Infosys were on the panel.

Transfer pricing has assumed added significance in the current era of globalisation. It is described as the price charged by one enterprise to an associated or connected enterprise for the supply of goods, services and knowhow .

On the relevance of this norm under Companies Act, sources told Business Line, "The Act already stipulates that the book of accounts of companies along with the balance sheet and the profit and loss account present a true and fair view of affairs of the company. This will help in clearly stating to what extent the money has been transferred."

The norms will help in checking cases of companies becoming sick, sources pointed out. According to the group report, the transfer pricing guidelines should be guided by core principles such as the requirement of arm's length prices. This means that all transactions between a company and a related party or between two business segments of a company should be at arm's length transfer prices. In exceptional cases, the company may decide to use a non-arm's length transfer price, provided the board of directors as well as the audit committee of the board are satisfied that it is in the interest of the company to do so.

More Stories on : Company Law | Company Law

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Households turn conservative — Equity investments stagnate in 2003-04

Textiles outsourcing, US' new bugbear

Draft rules soon on transfer pricing under Cos Act

No more excise relief on petro goods supplied to EOUs

BPCL ready for forward trading

New power policy awaits Cabinet nod

Sensex may see further decline