Getting acquainted with the concept of “deemed international transaction” in India
Transfer Pricing (TP) in India, was first introduced in 2001, in the Income-tax Act 1961 (the Act) and has seen various developments in the past two decades. The TP provisions are based on Article 9 of the Organization for Economic Co-operation and Development Guidelines (OECD) and were introduced to prevent the base erosion of India’s tax base. Primarily intra-group cross border transactions were covered under the ambit of TP and later vide amendment in 2014 in the Act, the concept of deeming fiction under Section 92B(2) of the Act was introduced in the Indian TP provisions.
In the era of globalization and increasing trade between countries, many multinational companies, in their normal business operations, interact with their group companies for the purpose of global growth and expansion. With this increase in global presence, MNCs also developed a mechanism whereby the Global customer and vendor contracts were entered or negotiated centrally to ensure better synergies on the transactions and also to negotiate better pricing due to their bargaining power at the group level and secure global business.