ICAI issued Revised Guidance Note on Report under Section 92E of the Income Tax Act 1961: Under this Guidance note, Chapter 4A related to Specified Domestic Transaction mentioned that if and when a new revised format of Form No. 3CEB is notified, contents of this Guidance Note may need to be reviewed, and an addendum issued, or separate or amended Guidance Note issued. Subsequent to this, there is a change in Form No. 3CEB for reporting International Transactions between Associated Enterprises.
Further Part C of 3CEB has been inserted to report Specified Domestic Transactions u/s 92 BA. Therefore, urgent need to update the third edition of Guidance Note was widely felt. The Guidance Note is mainly revised to give guidance to the members for reporting the transaction between Associated Enterprises u/s 92E of Income Tax Act, 1961.
I an era of liberalization and globalization of trade and investment and the emergence of e-commerce, the perceptible results have been – increase in the number of cross-border transactions, the complexity, speed and lack of transparency with which global business can be transacted. There is a general belief that multi-national corporations, in an effort to manage and minimize their global tax outflows, have employed creative transfer pricing approaches in the context of flow of goods, services, funds, intangibles, etc.
When transactions are entered into between independent enterprises, the consideration therefore is determined by market forces. However, when associated enterprises deal with each other, it is possible that the commercial and financial aspects of the transactions are not influenced by external market forces but are determined based on internal factors. In such a situation, when the transfer price agreed between the associated enterprises does not reflect market forces and the arm’s length principle, the profit arising from the transactions, the consequent tax liabilities of the associated enterprises and the tax revenue of the host countries could be distorted.
The existence of different tax rates and rules in different countries offers a potential incentive to multinational enterprises to manipulate their transfer prices to recognise lower profit in countries with higher tax rates and vice versa. This can reduce the aggregate tax payable by the multinational groups and increase the after tax returns available for distribution to shareholders.
Download the Revised Guidance Note on Report under section Section 92E as under: