• Service: Tax, Global Transfer Pricing Services, International Tax
  • Type: Regulatory update
  • Date: 12/10/2013

India - Determining arm’s length price of share transfers 

December 10:  The Chennai Bench of the Income-tax Appellate Tribunal held that the “discounted cash flow” method was preferable over the “yield” method or “net asset value” method for purposes of determining the arm’s length price of shares transferred to related parties. VIHI LLC v. ADIT (ITA No. 17 (Mds.)/2012)

The tribunal noted the discounted cash flow method was applied by the taxpayer itself in a subsequent year.


The taxpayer transferred its 91% share interest in an Indian entity to its related parties in Singapore and Mauritius. The taxpayer determined a transfer price for the shares based on a valuation certificate provided by chartered accountants.

The valuation was determined, using the “net asset value” method, as INR 15.05 per share and using the “profit earning capacity value” method as INR 9.23 per share. The taxpayer then took the average of these two values, and added a discount of 15% because the shares were not listed on an exchange.

The Transfer Pricing Officer, however, adopted the “discounted cash flow” method and valued the shares at INR 36.31 per share and made a transfer pricing adjustment.

The tribunal found, among other reasons, that because the taxpayer itself used the “discounted cash flow” method in the subsequent year, this was the most appropriate method for determining the value of the shares. Still, the tribunal accepted the taxpayer’s argument that a fresh “discounted cash flow” analysis could be presented to the Transfer Pricing Officer and remanded the case.

Read a December 2013 report [PDF 459 KB] prepared by the KPMG member firm in India: Discounted cash flow method most appropriate for determining arm’s length value of shares

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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