Transfer Pricing Audit Support: Who Needs It and Who Does Not
Whether Transfer Pricing Audit Support applies to a given business is the first thing worth settling, and it is where most of the early questions land. The questions below are the ones raised most often in practice; the full scope of the service is on the Transfer Pricing Audit Support page.
What exactly triggers transfer pricing compliance for an Indian company?
Any 'international transaction' — as defined under Section 92B — entered into with an 'associated enterprise' as defined under Section 92A triggers TP compliance. This covers sale or purchase of goods, provision or receipt of services, royalty and licence payments, loans and guarantees, cost allocations, and business restructuring, where the counterparty is outside India and meets the Section 92A relationship test (which includes shareholding thresholds, common control, and several other criteria beyond simple parent-subsidiary ownership). There is no minimum transaction value threshold for TP applicability itself, though Form 3CEB and Rule 10D documentation obligations do have prescribed thresholds for which parts of the form and study are mandatory.
In practice: TP is sometimes assumed to apply only to 'big' multinationals. A two-person India entity paying a modest management fee to its Dubai parent is squarely within Section 92E the moment that payment is made — the compliance obligation does not scale down with company size.
What is Form 3CEB and who needs to file it?
Form 3CEB is the accountant's report under Section 92E of the Income-tax Act 1961, filed by every person who has entered into an international transaction or a specified domestic transaction during the previous year. That Act governs previous years up to 2025-26; from tax year 2026-27 the equivalent provisions, with renumbered sections and forms, are in the Income-tax Act 2025. It must be furnished electronically, certified by a practising Chartered Accountant, and is due generally by 31 October of the assessment year for taxpayers with international transactions (the transfer-pricing-extended due date). The form discloses transaction-wise particulars across its annexures — nature of transaction, associated enterprise details, method applied, and value — and the CA certifies that proper information and documents have been kept as required under the Act and Rules.
In practice: Form 3CEB certification is not a rubber stamp — the certifying CA is personally taking a position that the prescribed documentation exists and is adequate. We reconcile every disclosed transaction value against your audited books and GST records before certifying; discrepancies here are one of the most common TPO trigger points.
What is a comparable company search, and why does the process matter so much?
A comparable company search is the systematic identification of independent (unrelated-party) companies whose transactions or profit margins can be used as a benchmark for testing whether your related-party pricing is at arm's length. It typically starts with a database search using quantitative filters (industry classification, related-party transaction threshold, persistent loss exclusion) and is refined with qualitative filters (business description review of each shortlisted company to confirm genuine functional comparability). The rigour and documented reasoning behind both the inclusions and exclusions matters enormously — a TPO's most common line of attack is disputing the comparable set, either by adding companies the taxpayer excluded or removing companies the taxpayer relied on.
In practice: We document the rejection reasoning for every comparable excluded from the final set, not just the inclusion reasoning for the ones retained. In a TP audit, the TPO frequently challenges exclusions specifically — having a documented, defensible reason for each one is often what determines whether an adjustment survives at the DRP or appellate stage.
Does transfer pricing apply to a company's very first year of cross-border operations, even with low transaction value?
Yes. There is no 'grace period' or minimum threshold below which Section 92E ceases to apply — the moment an Indian entity enters into a qualifying international transaction with an associated enterprise, TP compliance obligations arise for that financial year, including Form 3CEB filing and Rule 10D documentation (subject to the specific documentation-detail thresholds under Rule 10D(2), which do scale by transaction value for the extent of documentation required, though not for the basic obligation to comply). A first-year captive service arrangement with modest revenue is just as much within scope as an established, high-value one.
In practice: We build TP compliance into the very first year of any India-UAE or India-overseas structure we help set up, rather than treating it as something to address once the business 'scales up'. Establishing a defensible, benchmarked pricing policy from the first invoice avoids a multi-year unsupported pricing history that is far more expensive to unwind later.
What is the Master File under Form 3CEAA, and does our group need to file it?
The Master File, filed as Form 3CEAA, is a group-level document providing tax authorities a high-level overview of the multinational enterprise's global business — organisational structure, description of the business, intangibles owned and developed, intercompany financial activities, and financial and tax positions. It is mandatory in two tiers: Part A applies to every constituent entity in India of an international group, regardless of revenue; Part B (the fuller, more detailed filing) applies only where both a higher consolidated group revenue threshold and a specified aggregate international transaction value threshold are crossed, as set out under Rule 10DA.
In practice: We recompute Master File applicability every year rather than carrying forward a prior conclusion — a group's consolidated revenue and Indian transaction value both change year to year, and crossing the threshold mid-growth is a common miss for expanding mid-sized multinational subsidiaries in India.
What is Country-by-Country Reporting (CbCR), and who is responsible for filing it in India?
Country-by-Country Reporting, filed as Form 3CEAD, requires multinational groups above a prescribed consolidated global revenue threshold (set with reference to the Euro-denominated threshold under Rule 10DB, converted for Indian reporting purposes) to report, country-by-country, their revenue, profit before tax, taxes paid and accrued, capital, retained earnings, employees, and tangible assets. Ordinarily the ultimate parent entity of the group files CbCR in its own tax jurisdiction, and India, as a signatory to the OECD's automatic exchange framework, receives it through information exchange — but an Indian constituent entity can itself be required to file CbCR in India under specified circumstances, such as where the parent jurisdiction has no CbCR requirement or exchange arrangement with India.
In practice: Most mid-sized India-UAE or India-Singapore groups PNPC advises fall well below the CbCR consolidated revenue threshold, which is set at a level that captures only large multinational groups. We confirm this explicitly each year rather than leaving it as an assumption, since the consequence of missing a genuine CbCR obligation carries its own separate, significant penalty exposure.
How does an intercompany loan get benchmarked for transfer pricing purposes?
An intercompany loan's interest rate is benchmarked using the CUP method, typically by reference to comparable uncontrolled borrowing rates — considering the currency of the loan, the credit rating of the borrower (assessed on a standalone basis, generally without parental support unless the guarantee itself is separately compensated), the tenure, and prevailing market rates at the time the loan was extended. For outbound loans from an Indian entity to an overseas associated enterprise, and inbound loans, both directions require arm's length interest benchmarking, and Indian courts and tribunals have developed a substantial body of case law on appropriate benchmarks (LIBOR/SOFR-plus approaches, credit-rating-adjusted domestic or international bond yields, and bank lending rate comparables) that continues to evolve.
In practice: We benchmark the borrower's standalone credit profile carefully — using the parent's credit rating for a subsidiary's loan (an 'implicit support' assumption) tends to understate the arm's length interest rate an unrelated lender would actually charge that subsidiary standing alone, and is a position that does not hold up well under TPO scrutiny.
Does transfer pricing apply to transactions between two Indian companies under common ownership?
Only in the narrower specified domestic transaction (SDT) category under Section 92BA, and the scope here has been significantly reduced since the Finance Act 2017 removed most Section 40A(2)(b) related-party expenditure transactions from SDT coverage. Today, SDT provisions primarily catch specific scenarios such as transactions between an undertaking eligible for a profit-linked tax deduction or exemption (such as certain SEZ units) and another unit/undertaking of the same taxpayer or a related entity, where inflating or deflating the price between the two could shift profit into the tax-exempt unit. Most ordinary domestic related-party transactions between two independently taxed Indian companies are no longer within SDT's scope at all.
In practice: We still see confusion carried over from before the 2017 amendment, with businesses assuming ordinary domestic related-party payments (like rent or management fees between two group companies both taxed normally) require Form 3CEB reporting. We confirm current SDT scope specifically rather than defaulting to the pre-2017 understanding, which materially overstated what still applies today.
Where this sits in the wider engagement
Transfer Pricing Audit Support rarely arrives on its own. The statutory basis and the current requirements are set out on the Transfer Pricing Audit Support service page, and the related services are grouped under Audit Assurance.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Transfer Pricing Audit Support we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.