Form 3CEB practical implications part 2

1. Interest free loan – Indian HQ has provided interest free loan to its AE, it needs disclosure & care to be taken in terms of its evaluation for ALP. Highly litigated. Hence one needs to evaluate the circumstances if it can be treated as quasi equity. for eg conversion into equity later, commercial relationship between parties, or understand the purpose – if for acquisition of another target entity
2. Business restructuring – Any change in the FAR profile & resulting characterisation of assessee to be evaluated from business restructuring perspective. No specific guidance in Indian law & reliance to be placed on OECD guidelines. Will a change in the billing model be construed as business restructuring to be evaluated
3. Service or reimbursements- Understanding nature of the transaction is most critical. E.g India employees salary costs are reimbursed by AE. When you deep dive, they may be carrying out some activity (sourcing/marketing) for AE & hence costs are recovered. However these are services & are not reimbursements per se. Pricing needs to revisited for these transactions. One should not go by the pricing policy to decide if it is a service or reimbursement but nature is the crux
4. . Management charges paid– First is proof of receipt of services including need benefit test & second is the pricing of the transaction (cost plus etc). Back up evidences including emails, travel details, minutes of meeting, to be collated. Cost pool workings, exclusion of shareholder activity costs, consistency across the group warrants attention. Cost plus could be substantiated by comparables in the country of the service provider. Is safeharbor an option?
5. Royalty – Can be for technology, brand or both- running royalty or lump sum. Royalty workings, documentation to prove the need for such payment on an annual basis needs to be evaluated. CUP or TNMM (through aggregation) to be evaluated.
6. SDT transactions – Transactions with tax holiday units, recent one new manufacturing entity under Sec 115BAB (concessional rate @15%) to be disclosed. Cross charge of common costs also needs disclosure.

If all supportings are gathered at time of documentation itself then one need not run around at the time of TP audit to comply with the request of the TPO.

Last year there were some practical challenges in upload where the Offline utility was not developed & 3CEBs had to be manually done through the ca login portal. Even though CSV upload was later introduced, the tables comprising of transaction details were not appearing in uploaded Form 3CEB and it was referenced as annexure only

For FY 21-22, the offline utility has been recently released.  Hope this would smoothen the process.