Dear Readers, We are pleased to present TransPrice Times for the second fortnight of May 2016. The newsletter provides a round-up of key transfer pricing and international tax developments in India. One of the most recent key developments prescribed in this issue is draft valuation rules for indirect transfer of shares and notification of Equalization Levy Rules, 2016 (BEPS Action Point 1). We hope you find this newsletter both timely and useful, and we look forward to your feedback and suggestions to improve it further. You can write to us at akshaykenkre@transprice.in Happy Reading!!!

1. TransPrice Times
Edition: 16th
– 31st
May 2016
Contact us: 607A, 7th
Floor, Ecstacy Commercial Complex, City of Joy, JSD Road, Mulund (W), Mumbai
– 400 080. Tel: 022-64640494; Mobile: +91 9819245424; email: akshaykenkre@transprice.in
McDonalds India Pvt Ltd – ITAT
– Delhi
Outcome: In favour of taxpayer
Category: Royalty Pass-through
The Tax Court upheld the taxpayer’s claim for
recognising royalty from franchisee/ JVs
transaction as pass through cost to AE, that did
not have any profit element or value additions
made.
Further, facts suggest that taxpayer remits
royalty / franchise fees within 5 days of each
month to its AE without fail. It was the
Department’s view that royalty is not a pass
through as taxpayer assumes risk in case of
default by franchisee. Accordingly, the Tax
Court pointed out that there was no default in
prior years and no risk would be assumed,
therefore ruling in favour of taxpayer.
Strides Shasun Limited – ITAT –
Mumbai
Outcome: Against taxpayer
Category: Interest free loan
Tax Court rules interest free loan to AE for
reimbursement of expenditure to fall within
meaning of international transaction.
Accordingly, clause (c) of Explanation-(i) to
Section 92B of Income-tax Act, 1961 covers
expenditure on receivables from AEs which are
incurred on behalf of AE.
RECENT NEWS
CBDT proposes draft ‘indirect
transfer’ valuation rules
CBDT releases draft valuation rules to
determine FMV, for public consultation:
 FMV of tangible or intangible assets held by
foreign company deriving its value
substantially from assets located in India,
shall be calculated as per new rule 11UB.
 FMV of listed shares to be on ‘observable
price’ i.e. higher of average weekly high and
low closing prices during last 6 months or 2
weeks preceding the specified date. Where
listed shares held as shareholding, then fair
market value equals (A+B)/C, where,
 A= market capitalization of
company on ‘observable price’
 B= book value of liabilities
 C= total number of shares
 Fair market value of unlisted shares
transferred shall be determined on arm’s
length basis increased with value of liability
by merchant banker or accountant
following internationally accepted pricing
methodology.
 Assets of foreign company or transfer of
shares between unrelated parties be
evaluated on external valuation report plus
adjustment for liabilities.
 Income attributable to Indian assets be
determined as per Rule 11UC: A * B/C
where,
 A= Income from transfer of
share/interest
 B= Fair Market Value of assets
located in India as per Rule 11UB,
 C= Fair Market Value of all global
assets as per Rule 11UB
Form 3CT should be obtained from
accountant for determining proportionate
income relating to assets in India. If
transferor fails to give information for
applying above formula, whole income shall
be deemed to be attributable to assets
located in India.
 90 days deadline from end of financial year
for transfer of share/interest in foreign
company.
Equalisation levy & Direct Tax
Dispute Resolution Scheme
rules to be effective from June 1
CBDT notifies Equalisation Levy Rules, 2016 for
furnishing Equalisation Levy electronically on or
before June 30 in prescribed Form 1. December
31, 2016 to be last date for making declaration
to designated authority in respect of tax arrears
/ specified tax under new Direct Tax Dispute
Resolution Scheme, 2016.