The Income Tax Department is likely to slap a demand of Rs 8,500 crore on foreign companies and their domestic subsidiaries which allegedly transferred profits to other countries to reduce  tax liability. “Income Tax Department is likely to raise over Rs 8,500 crore from transfer pricing audits. There has been scrutiny of 8,105 such cases,” Finance Ministry sources told PTI.
Transfer pricing deals with the technique where parent companies sell goods and services to subsidiary entities at an inflated price to deliberately reduce profits and tax liability. The law requires that goods and services should be sold to subsidiary companies at arm’s length price — the price at which goods are traded between unconnected companies. Taxing these units has become a complex area for the revenue department, with the government often disagreeing on the profits declared by a foreign company for its Indian unit.

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