♣ Secondary Adjustment has been inserted vide section 92CE by the Finance Act, 2017, in order to align TP provisions with OECD TP Guidelines and “international best practices”.

♣ Secondary adjustment means an adjustment in the books of accounts of the taxpayer and its associated enterprise (‘AE’) to reflect that the actual allocation of profits between the taxpayer and its AE are consistent with the transfer price determined as a result of primary adjustment, thereby removing the imbalance between cash account and actual profit of the taxpayer.

♣ Primary adjustment to a transfer price means the determination of transfer price in accordance with the arm’s length principle resulting in an increase in the total income or reduction in the loss, as the case may be, of the taxpayer. It is pertinent to note here that Indian Tax Authorities shall make primary adjustment only if it is in favour of the revenue.

♣ The taxpayer shall be required to carry out secondary adjustment where the primary adjustment to transfer price:

  • has been made suo-moto by the taxpayer in his return of income;
  • made by the Assessing Officer or the appellate authority, as the case may be has been accepted by the taxpayer;
  • is determined by an advance pricing agreement (“APA”) entered into by the taxpayer;
  • is made as per the safe harbour rules framed;
  • is arising as a result of resolution of an assessment by way of the mutual agreement procedure (“MAP”) under an agreement entered into under Section 90 or 90A of the Act for avoidance of double taxation.

♣ Where as a result of primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the taxpayer, the excess money which is available with its AE, if not repatriated to India within the time as prescribed, shall be deemed to be an advance made by the taxpayer to such AE and the interest on such advance, shall be computed as the income of the taxpayer.

♣ Excess money means the difference between the arm’s length price determined in primary adjustment and the price at which the international transaction has actually been undertaken.

♣ The manner of computation of advance by the taxpayer to such AE is tabulated below:

Type of primary adjustment Time limit for repatriation Applicable interest rate for delayed receipts
Adjustment made by the Assessing Officer or Appellate

Authority and accepted by the taxpayer

On or before 90 days from the date of relevant order 4   Where the international transaction is denominated in INR: One year marginal cost of fund lending rate of State Bank of India as of 1 April of the relevant financial year (“FY”) plus 325 basis points;

4   Where the international transaction is denominated in foreign currency: Six month London Interbank Offered rate as of 30 September of the relevant FY plus 300 basis points

Suo-moto adjustment by the taxpayer On or before 90 days from the due date of filing return of income
Adjustment pursuant to APA, Safe Harbor or MAP

♣ Furthermore, Secondary adjustment would not be applicable, if the amount of primary adjustment made in the case of a taxpayer in any previous year does not exceed one crore rupees and the primary adjustment is made in respect of an assessment year commencing on or before 1 April 2016.

Amendment proposed in Finance bill 2019

The Finance Minister has proposed to provide an option to the taxpayers of either paying tax @ 30% on deemed interest every year until the principle amount is repatriated or pay one-time payment of tax thereon @ 18% plus surcharge of 12% . However, no credit or deduction would be allowed against this one-time payment.

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