Rules On Taxation Of Domestic And International Transactions Amended

The Central Board of Direct Taxes has made various amendments to the Income Tax Rules dealing with transfer pricing, which are to be enforced with effect from April 1 2013. The amendment prescribes a new format for Form 3CEB to include disclosures on specified domestic transactions and additional clauses dealing with international transactions.

Amendment to rules

Specified domestic transactions will now be included in the transfer pricing provisions prescribed under Rules 10A, 10B, 10C and 10E of the Income Tax Rules. In this regard, Rule 10B will be amended to include Rule 10AB, which will pertain to specified domestic transactions.

Furthermore, the term 'associated enterprise' has now been defined specifically to include specified domestic transactions. The transfer pricing provisions will be applicable to such transactions in relation to:

• expenditure for which payment has been made or is to be made to domestic related parties;
• holiday or other tax deductions claimed by the assessee;
• the transfer of goods or services between various businesses of the same assessee; and
• greater than ordinary profits derived from transactions with closely connected persons.

Amendment to accountant's report form

The accountant's report detailed in Form 3CEB, which is a mandatory report that the taxpayer must obtain from a chartered accountant, has been made more precise and elaborate. The entire form has been bifurcated into three parts - the first part pertains to Form 3CEB (Part A) and the second and third parts to the appendices to Form 3CEB, which will now be divided in two as follows:

• disclosures pertaining to international transactions (Part B); and
• disclosures pertaining to specified domestic transactions (Part C).

Part A
Wherever the term 'international transaction' was used in Form 3CEB, it will now be substituted with the term 'international transaction(s) and specified domestic transaction(s)'.

Form 3CEB will also require the disclosure of the aggregate value of specified domestic transactions in line with the books of accounts, in addition to the disclosure of international transactions made to date.

Part B
The amended Form 3CEB requires additional disclosures on international transactions. The notification¹ has led to the separate demarcation of different international transactions that were previously grouped under the heading "Particulars in respect of any other international transaction".

As a result, the following international transactions must be disclosed separately under different clauses:

• guarantees;
• business restructurings or reorganisations;
• the purchase or sale of marketable securities;
• the issue or buy-back of equity shares and debentures or preference shares; and
• deemed international transactions and any transaction having an impact on profits, incomes, losses or assets of the taxpayer.

Part C
The main change in Form 3CEB is the introduction of a separate new section on the disclosure of details of specified domestic transactions of the taxpayer, which must now be revealed under different clauses.

Footnotes

^{1. Notification 41/2013/ F 142/42/2012-TPL.}

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