Almost every foreign subsidiary transacts with its parent company. Understanding Section 92, Arm's Length Price (ALP) benchmarking, contemporaneous documentation, and Form 3CEB certification.
Under Section 92 of the Income-tax Act, 1961 (and corresponding provisions of the Income-tax Act, 2025), any income or allowance for expense arising from an international transaction between Associated Enterprises (AEs) must be computed having regard to the Arm's Length Price (ALP).
Foreign parents frequently assume transfer pricing applies only to high-value goods. In reality, the definition under Section 92B reaches:
While detailed TP documentation files have monetary thresholds, the obligation to obtain and file Form 3CEB (certified by a Chartered Accountant u/s 92E) applies to EVERY company that enters into any international transaction with an AE, regardless of amount.
The Act prescribes 6 methods to compute Arm's Length Price: Comparable Uncontrolled Price (CUP), Resale Price Method (RPM), Cost Plus Method (CPM), Profit Split Method (PSM), Transactional Net Margin Method (TNMM), and Other Method. For IT/ITES and service subsidiaries, TNMM is most commonly applied using database benchmarking (Prowess / Capitaline).
Our international tax practice drafts intercompany agreements, conducts TP benchmarking studies, and certifies Form 3CEB reports.
