International Transfer Pricing in Services MNCs: A Case of Banking and Insurance Sector

NEW AGE MARKETING: EMERGING REALITIES, pp. 225-238, Upinder Dhar, V. V. Nath, Satish K. Nair, Kumar Yadav Prabhat, Excel Books, January 2008

15 Pages Posted: 27 Feb 2011 Last revised: 14 Jun 2012

See all articles by Pawan K. Chugan

Pawan K. Chugan

Nirma University - Institute of Management

Date Written: January 1, 2008

Abstract

One of the important issues in the areas of international taxation, international technology transfer and foreign investment by the MNCs that has been drawing greater attention of tax authorities worldwide is the issue of transfer pricing i.e. the compensation paid for intra-group services to related units of MNCs. Though the initial focus of transfer pricing audit by taxation authority was used to check the abuse of transfer pricing by manufacturing industries, with the growing entry of service MNCs in the global arena, more particularly in the field of financial services such as banking and insurance, where there is lot of scope of tax evasion, taxation authorities are tightening their grips to audit transfer pricing issues with respect to these services. In this direction, this paper captures the concept of transfer pricing while quoting a few evidences of its abuse by MNCs, describes its scope in the area of banking and insurance sectors vis-à-vis underscores the Indian legislation on transfer pricing and describes the firm specific implications so that the concerned tax payers (MNCs) may adopt suitable tax planning approach, maintain proper information and documentation and escape form heavy penalties and harassment. At the end, it has been suggested MNCs should go for Advance Pricing Arrangement (APA), which is under active consideration by the Indian taxation authority. The paper also highlights the advantages of APA system and recommends its inclusion in Indian transfer pricing legislation at the earliest as it will prove beneficial for both taxpayers (MNCs) and taxation authority.

Keywords: Transfer Pricing, Advanced Pricing Arrangements (APAs), Abuse of Transfer Pricing, Arm’s Length Pricing, Services MNCs, Multinational Corporations and Tax Administration, International Transfer Pricing, Intra-Group Services

JEL Classification: E62, F21, F23, H2, H32, H87

Suggested Citation

Chugan, Pawan Kumar, International Transfer Pricing in Services MNCs: A Case of Banking and Insurance Sector (January 1, 2008). NEW AGE MARKETING: EMERGING REALITIES, pp. 225-238, Upinder Dhar, V. V. Nath, Satish K. Nair, Kumar Yadav Prabhat, Excel Books, January 2008. Available at SSRN: https://ssrn.com/abstract=1769367

Pawan Kumar Chugan (Contact Author)

Nirma University - Institute of Management ( email )

Sarkhej Gandhinagar Highway
Ahmedabad, Gujarat 382481
India
+912717241900 (Phone)
+912717241916 (Fax)

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