Transfer pricing refers to the prices charged in transactions between related parties (associated enterprises within the same multinational group) for goods, services, or intangibles. Tax authorities worldwide require that such prices conform to the arm's length principle — i.e., the price that would have been charged between independent parties in comparable transactions.
Transfer pricing governed by Sections 92–92F of the Income Tax Act 1961, with Rules 10A–10THD. India mandates annual TP documentation and Form 3CEB (Chartered Accountant certificate). APA (Advance Pricing Agreement) program available under Sections 92CC–92CD. India is one of the highest-risk TP audit jurisdictions globally.
HMRC enforces transfer pricing under TIOPA 2010 Part 4. UK adopted OECD BEPS Action Plans. Mandatory disclosure rules (MDR) apply. Small and medium enterprises have exemptions.
IRC § 482 grants the IRS broad authority to reallocate income and deductions between related parties. Three-tier documentation rules. APA program is available.
OECD Transfer Pricing Guidelines (2022 edition) are the global standard. BEPS Action 8-10 aligned TP rules with value creation. Pillar One (Amount A) will fundamentally change TP for large MNEs.
The arm's length principle (ALP) requires that transactions between associated enterprises be priced as if they were conducted between independent parties in comparable circumstances. OECD Guidelines Article 9 and domestic rules (e.g., Section 92C ITA India) embody this principle.
Indian regulations require: (1) Form 3CEB certified by a CA, (2) Contemporaneous documentation under Rule 10D (local file equivalent), (3) Master file and Country-by-Country Report (CbCR) for qualifying MNEs (consolidated revenue > INR 5,500 crore or EUR 750M). Penalties for non-compliance are 2% of transaction value.
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