Transfer Pricing Study in India - TP Documentation and Benchmarking Report | Expert CA

Transfer Pricing Study in India

FAR Analysis, Comparables Benchmarking, ALP Determination and Local File Documentation

A transfer pricing study (also called the Local File or TP documentation) is the core deliverable of annual TP compliance in India. It is a comprehensive report describing the taxpayer's business and industry, analysing the functions performed, assets used, and risks assumed (FAR analysis) by each party to the intercompany transaction, selecting the most appropriate TP method, identifying comparable companies, and determining the arm's length price or margin range. The TP study must be maintained before the income tax return due date and made available to the Transfer Pricing Officer within 30 days of requisition.

A well-prepared TP study is the primary defence in a TP audit -- demonstrating that the taxpayer's intercompany pricing was determined using a systematic, documented methodology consistent with the arm's length standard and OECD guidelines. Our TP study team prepares comprehensive, audit-ready documentation tailored to each client's business model and transaction profile.

Components of a Transfer Pricing Study

Industry and Business Overview

Macro-economic and industry analysis -- competitive landscape, market conditions, industry drivers and risks -- providing context for evaluating the taxpayer's intercompany transactions against industry norms.

Group Overview and Structure

Description of the MNE group -- ownership structure, group revenue, business segments, supply chain, key intangibles, and intercompany transaction flows within the global group structure.

Functional Analysis (FAR)

Detailed analysis of functions performed, assets employed, and risks assumed by the Indian entity and the foreign AE -- the foundation for determining the tested party, TP method, and appropriate comparables.

Method Selection

Analysis and documented selection of the most appropriate TP method for each transaction type -- with reasons for methods selected and rejected, per Indian TP regulations and OECD guidelines.

Comparables Search and Selection

Systematic database search (Prowess, Capitaline, Orbis) for comparable uncontrolled companies or transactions -- with documented quantitative and qualitative filtering criteria and rejection reasons.

ALP Determination and Range

Computation of the arm's length price or margin range (interquartile range of comparables) -- and comparison with the taxpayer's actual margin to confirm arm's length compliance or identify the adjustment amount.

Frequently Asked Questions

What is a FAR analysis in transfer pricing?

FAR analysis (Functions, Assets, Risks) maps for each party to an intercompany transaction what functions are performed (manufacturing, distribution, marketing, R&D, services), what assets are employed (tangible assets, intangibles, financial assets), and what risks are assumed (market risk, credit risk, IP development risk). The FAR analysis determines the functional characterisation of the tested party -- a limited-function entity (contract manufacturer or limited-risk distributor) would be benchmarked differently from a full-function entity bearing significant risks. It is the foundation of every TP study and the starting point for any TPO challenge in audit.

What is the most commonly used TP method in India?

The Transactional Net Margin Method (TNMM) accounts for approximately 70-80% of TP studies in India. TNMM compares the operating profit margin of the tested party (usually the Indian entity) with margins of comparable independent companies performing similar functions. TNMM is popular because comparable companies (rather than comparable transactions) can be more readily identified in public databases. CUP is used for commodity transactions, CPM for contract manufacturing and services, and PSM for highly integrated/interdependent transactions where unique intangibles exist on both sides.

When must the TP study be ready in India?

The TP study must be prepared and kept ready before the income tax return due date -- October 31 (or November 30 in certain cases). The study does not need to be filed with the tax return but must be submitted to the TPO within 30 days of requisition during assessment. Form 3CEB (the CA-certified TP report) must be filed with the income tax return by the due date. The TP documentation requirement under Section 92D is a "maintain before due date" obligation, not a "file with return" obligation.

Need a Comprehensive Transfer Pricing Study? We Deliver Audit-Ready Documentation.

FAR analysis, comparables benchmarking, ALP determination, and complete Local File preparation -- tailored to your business model.