Transfer Pricing Audit

Commercial transactions between the different parts of multinational groups may not be subject to the same market forces shaping relations between two independent firms. One party transfers to another, goods or services, for a price. That price is known as “transfer price”. “Transfer pricing” refers to the setting of prices at which transactions occur involving the transfer of property / goods or services between associated enterprises, forming part of an international group company.

This may be arbitrary and dictated, with no relation to cost and added value, and may diverge from the market forces. Transfer price is, thus, a price that represents the value of goods or services between independently operating units of an organisation.

The transactions between associated enterprises which may take place under conditions differing from those taking place between independent enterprises. It also refers to the value attached to transfers between unrelated parties which are controlled by a common entity.

Worked example. Suppose a company A purchases goods for 100 rupees and sells it to its associated company B in another country for 200 rupees, who in turn sells in the open market for 400 rupees. Had A sold it directly, it would have made a profit of 300 rupees. But by routing it through B, it restricted it to 100 rupees, permitting B to appropriate the balance. The transaction between A and B is arranged and not governed by market forces. The profit of 200 rupees is, thereby, shifted to the country of B. The goods are transferred on a price (transfer price) which is arbitrary or dictated (200 rupees), but not on the market price (400 rupees). Thus, the effect of transfer pricing is that the parent company or a specific subsidiary tends to produce insufficient taxable income or excessive loss on a transaction.

To protect the interest of revenue, the Government of India, through the Indian Income Tax Act 1961, frames transfer pricing regulations. Both international transactions with Associated Enterprises and Specified Domestic Transactions are subject to transfer pricing regulations. According to Section 92E, every person who has entered into an international transaction or specified domestic transaction during a previous year shall obtain a report (Transfer Pricing Audit Report) from a Chartered Accountant in Form 3CEB and furnish such report on or before 30th November.

Our firm, with qualified Chartered Accountants and experienced professionals, provides Transfer Pricing Audit services, maintenance of Transfer Pricing documentation, and the filing of related forms — Form 3CEB, Form 3CEAA, Form 3CEAB, Form 3CEAC, Form 3CEAD, Form 3CEAE etc. — alongside the related Income Tax Return, in line with CBDT’s Country-by-Country Reporting (CbCR) guidelines.

• Sections 92, 92A – 92F, 92CA, 92D and 92E of the Income Tax Act, 1961.
• Rules 10A – 10E of the Income Tax Rules, 1962, and Form 3CEB issued thereunder.
• Section 286 read with Rules 10DA / 10DB — Master File and CbCR requirements.
• Form 48 under the Income Tax Act, 2025 (corresponding to Form 3CEB on renumbering of forms).
• Penalty exposure under Sections 270A, 271AA, 271BA, 271G and 271GA for non-maintenance / non-furnishing / under-reporting.

• Kick-off and scoping — map of associated enterprises, transaction taxonomy, materiality thresholds.
• FAR analysis and functional interviews with business, finance and tax leadership.
• Industry research and economic analysis — comparable selection, accept-reject matrix, quantitative filters.
• Margin computation and arm’s-length range / mean / median analysis under Rule 10CA.
• Documentation drafting / review — covering each transaction stream and entity-level & master-file information sets.
• Issuance of Form 3CEB by the auditor on the income-tax e-filing portal.
• Defence file build — transfer-pricing memo, contemporaneous evidence, FAR pack and APA / safe-harbour considerations.

A typical engagement runs over 4 to 8 weeks, depending on the number of transaction streams, entities involved and quality of underlying documentation. The Form 3CEB filing must be on the income-tax portal on or before 31st October of the assessment year (the due date for tax-audit cases involving TP under Section 139(1)). Fees are engagement-letter driven, structured as a base retainer with a per-transaction loading where benchmarking or master-file work is required.