Definitions & determination applicability of TPR:
There are two fundamental tests to conclude whether TPR apply to a particular entity and transaction :
- The entity has entered into an "international transaction" and
- such international transaction is with a Foreign Associated Enterprise (FAE)
Section 92B: International Transaction :
For a Transaction to be an international transaction, it should satisfy the following two conditions cumulatively :
- It must be a transaction between two associated enterprises, and
- atleast one of the two enterprises must be a non-resident
Also various types of transactions like purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business etc are covered.
Section 92A: Foreign Associated Enterprise (FAE)
The concept of deemed an associated enterprise has also been incorporated in S. 92A (2) which provide that two enterprises shall be deemed to be associated enterprises if, at any time during the previous year :
- one enterprise holds, directly or indirectly, shares carrying not less than twenty six per cent of the voting power in the other enterprise; or
- any person or enterprise holds, directly or indirectly, shares carrying not less than twenty six per cent of the voting power in each of such enterprises; or
- a loan advanced by one enterprise to the other enterprise constitutes not less than fifty one per cent of the book value of the total assets of the other enterprise; or
- one enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or
- more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or
- more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or
- the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or
- ninety per cent, or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or
- the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or
- where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or
- where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family, or by a relative of a member of such Hindu undivided family, or jointly by such member and his relative; or
- where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or
- there exists between the two enterprises, any relationship of mutual interest, as may be prescribed. It may be noted that the Rules 10A to 10E do not refer to any relationship of mutual interest.
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