Saturday, October 4, 2008

Motive to Avoid and Transfer Pricing

Transfer pricing and arm’s length pricing have become increasingly important subjects over the past few years, with the growing importance of cross-border transactions between companies under the same umbrella organisation, or connected in other ways. Several questions have arisen – the definition of ‘associated enterprises’, the appropriate method of computing transfer pricing etc.

One of these questions is whether motive to avoid is a necessary condition for invoking arm’s length provisions. The Bangalore ITAT has considered these questions in detail in Philips Software Centre Pvt. Ltd. v. ACIT, a decision given on September 26, 2008, in ITA No. 218 (BNG)/08. A brief analysis of this judgment is available here. A text of the 172 page order is available here.

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