India is significantly reforming its Transfer Pricing regulations to simplify compliance for multinational companies and provide tax stability. These amendments intend to align the inland practices with international standards and prevent tax base erosion.
Understanding Transfer Pricing
Transfer Pricing consists of values assigned to transactions between subsidiaries or affiliated companies within the same corporation. Given that tax rates vary among jurisdictions, multinational companies may be incentivized to set transfer prices by reducing their overall tax burden. It may involve setting higher prices in high-tax countries and lower prices in low-tax jurisdictions, thereby increasing profits in the latter.
Noteworthy Controversies in India
India has had significant Transfer Pricing disputes. One prominent case involved Kellogg India in distributing Pringles. The company argued that the entity in Singapore supplying the product should be the tested party in determining the Arm’s Length price. Conversely, the Indian tax authorities insisted that Kellogg India should be the tested party, applying the transactional net margin method, which resulted in a significantly lower profit margin and suggested a possible profit shifting to Singapore. Ultimately, the Income Tax Appeal Court ruled in favor of Kellogg India, accepting its choice as the tested party and concluding that the transaction price did not require adjustment.
Transfer Pricing Framework in India
India has amended to adapt to global economic dynamics and global standards since the introduction of Transfer Pricing Regulations more than two decades ago. Despite these efforts, interpreting these laws has generated substantial tax disputes.
One of the recent amendments to the Transfer Pricing rules implemented by the government is stipulated in the Finance Bill 2025. This proposal establishes that taxpayers will be able to obtain a multi-year process to determine the Arm’s Length Principle, which amends the current regulations[1], and establish an annual mechanism to determine the market value for each transaction.
The amendments suggest the implementation of a global evaluation mechanism for Transfer Pricing, which will provide fiscal stability for three years, aligning with international best practices. A predetermined Arm’s Length price will be applied to similar transactions for three years, which will simplify the process for companies.
It should be noted that these amendments will be effective as of April 1, 2026, subject to pending parliamentary approval.
Conclusion
The proposed Transfer Pricing reforms are significant for simplifying tax compliance and aligning with international best practices. These measures aim to stabilize multinational companies and ensure an equitable distribution of tax liabilities.
Keep Informed!
Companies operating in multiple jurisdictions must keep up-to-date with Transfer Pricing reforms. We recommend consulting with tax and legal experts to ensure compliance and optimize your tax planning.
At TPC Group, we are Transfer Pricing experts at your disposal.
Source: Policy Circle Sections 92 to 92F of the Income Tax Act