Form 3CEB practical implications

TP CERTIFICATE – FORM 3CEB- POINTS FOR CONSIDERATION

1. Identification of Associated Enterprises(AEs) – Information in Form 3CEB has to be certified to be true & correct as against true and fair position which is certified by the CA in the audit report to the financials. Hence relying primarily on AS18 (related party disclosure) may not be sufficient for the purpose of 3CEB audit . While identifying AEs, one needs to bear in mind that conditions laid in 92A(1) and 92A(2) needs to be cumulatively satisfied. If PE is created in India by virtue of the activities a foreign entity carries out, then the PE should also carry out the TP compliance
2. Deemed AEs- commonly missed to report under the below situations
   • A taxpayer is wholly dependent on the license granted by non-resident for manufacture or processing of goods
   • Heavy reliance (more than 90%) on purchase of raw material from a supplier for manufacturing and prices are influenced by the supplier
3. Deemed International transaction – One should also check if there are any deemed transactions under section 92B(2) by asking pertinent questions relating to the contract such as pricing and other terms & condition with the third party
4. Foreign entities Compliances– In case where income accrues or arises in India for a foreign entity, then Form 3CEB to be filed. Exemption is given for certain class of transactions. Foreign entities cannot rely on the TP document maintained by the Indian subsidiary and has to maintain separately.
5. Free of cost (FOC) assets –  FOC assets provided by the AE to be disclosed. Common example – Microsoft licenses or other licenses may have been given free of cost to Indian entity by HQ. It is just not the disclosure but there are other implications which needs to be evaluated – considering it as a notional cost in cost base , treatment for GST purposes etc
6. Interest – In December 2021, there has been a transition from LIBOR to alternate referencing rates (ARR). So during FY 21-22, if the terms of contract have been amended to reflect the new ARR like SOFR,SONIA,SARON,ESTR,etc then comparability of terms while carrying out interest rate benchmarking may pose certain challenges and may require certain adjustments.
7. Corporate Guarantee – In Indian HQ companies there may be guarantee provided to AEs with no compensation. Guarantee is a service but whether it can be construed as shareholder activity warranting no payment- needs to be evaluated
8. Issue of shares- While the Supreme Court has ruled that it is not an international transaction, the form has not been amended to effect the same and hence caution needs to be exercised when any stand on disclosure is undertaken.