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Understanding TNMM In A Simple Way

Income Tax : The Indian Transfer Pricing Regulations (i.e. Section 92C of the Income-tax Act, 1961 read with Rule 10B of the Income-tax Rules, ...

May 19, 2021 29355 Views 0 comment Print


Latest Posts in TNMM

Understanding TNMM In A Simple Way

May 19, 2021 29355 Views 0 comment Print

The Indian Transfer Pricing Regulations (i.e. Section 92C of the Income-tax Act, 1961 read with Rule 10B of the Income-tax Rules, 1962) as well as the OECD Transfer Pricing Guidelines provide the following 5 common transfer pricing methods for evaluating the related party transactions undertaken between entities: 1. Comparable Uncontrolled Price (CUP) Method – The […]

Transfer Pricing- ITAT Delhi held that for TNMM, interest on surplus and abnormal costs to be excluded

March 29, 2011 10084 Views 0 comment Print

Marubeni India Pvt. Ltd. v ACIT (I.T.A. No.919/Del/2009) (ITAT Delhi)- Interest income is to be excluded from operating revenue for computing the net profit from operating activity unless such interest income has nexus with the international transaction. Under the captive service and cost plus model, if an expense has a direct link with the international transaction, the same should form part of total cost i.e. operating costs. The onus is on the taxpayer to maintain robust documentation for availing necessary economic and risk adjustments. The option of +/- 5 % is available only to the taxpayer when he is computing the ALP and not when the AO/TPO is computing the ALP

Pass- through costs that are incurred for non value- added purposes should not form part of the cost base while determin

January 26, 2011 5606 Views 0 comment Print

The ruling upholds and reiterates the OECD position on pass -through costs that are not incurred for value-added purposes. It will provide clarity and guidance to taxpayers and tax administration alike on the issue of determination of cost base in si

Pass-through costs (paid to third party vendors) not to be included in cost base for determining net profit margin

December 18, 2010 3402 Views 0 comment Print

The ITAT Delhi held where a taxpayer engaged in rendering advertising and related services to its Associated Enterprises (AEs) is also acting as an intermediary between the AEs and the third party vendor to rent advertisement space from the vendor, costs recovered by the taxpayer from the AEs for such renting and then passed on to the vendors (pass-through costs) would not be value adding costs for the taxpayer and would, therefore, not be taken into account for computing net profit margin (Operating Profit / Total Cost) of the taxpayer for applying the Transactional Net Margin Method (TNMM).

No Penalty for bonafide difference of opinion in selection of transfer pricing method

November 15, 2010 2894 Views 0 comment Print

The Tribunal ruling has reiterated the principle of ‘bona fide difference of opinion’ arising in the context of application of most appropriate transfer pricing method. The Tribunal has ruled that any addition to income arising as a result of bona fide difference of opinion cannot be used as a basis for levy of penalty.

ITAT Delhi rejects Assessing Officer’s approach of cherry picking the comparables and proposing an arbitrary Transfer Pricing adjustment

October 25, 2010 1975 Views 0 comment Print

Recently, the Delhi bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of ACIT Vs M/s Toshiba India Private Limited (2010-TII-14-ITAT-DEL-TP) has rejected the Assessing Officer’s approach of cherry picking the comparables and proposing an arbitrary Transfer Pricing adjustment.

Transfer Pricing TNMM must be applied to transaction margins and not to enterprise level margins. Adjustments must be confined to international transactions

July 16, 2010 588 Views 0 comment Print

The assessee, engaged in the business of manufacture and export of diamonds and jewellery, claimed that having regard to the nature of the product, none of the transfer pricing methods were applicable for benchmarking the international transactions with associated enterprises. The TPO rejected the argument on the ground that the Transactional Net Margin Method (TNMM) was applicable and made an adjustment by comparing the enterprise level operating margins.

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