The increasing participation of multi-national groups in economic activities in the country has given rise to new &
complex issues emerging from transactions entered into between two or more enterprises belonging to the same multi-national group.
With a view to provide a detailed statutory framework which can lead to computation of reasonable, fair & equitable profits and tax in India, the Finance Act 2001 introduced the detailed Transfer Pricing Regulation (TPR) i.e. section 92 w.e.f. 1st April 2001.
The basic philosophy of the entire regulation is to ensure that taxes due by Indian entities in respect of transactions with its foreign associated enterprise ("FAE") are not evaded. Accordingly the entire mechanism revolves around "arm's length pricing" of these transactions i.e. to say that the profit that an Indian entity would have earned in these transactions if they were not with foreign associated enterprise are earned even when the transaction is with FAE.
Such regulation already exists in many developed countries and accordingly India is not the first country to introduce such regulations.
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