• Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 6/10/2013

India - Foreign investments not subject to transfer pricing 

June 10: The Hyderabad Bench of the Income-tax Appellate Tribunal held that investments made by the taxpayer in its foreign subsidiaries are not in the nature of “transactions” (as that term is defined under the transfer pricing rules of section 92B of India’s Income-tax Act). Accordingly, the transfer pricing provisions do not apply to such investments, i.e., those not having an income element. Vijai Electricals Ltd. v. ACIT [IT(TP)A No. 842/HYD/2012]


The taxpayer manufactures and sells power transformers and rural electrification projects on a “turnkey” basis.

The taxpayer invested in three foreign subsidiaries (in Brazil and in Mexico). India’s Commissioner of Income-tax, Administration, concluded that these investments qualified as “international transactions” under the transfer pricing rules of section 92B, and that the transfer pricing report requirements under section 92E applied.

An issue before the tribunal was whether the investments made by the taxpayer qualified as international transactions within the meaning of the transfer pricing rules (under sections 92B and 92E).

The tribunal concluded that capital investments in foreign subsidiaries are not transactions referred to under section 92B and that, absent income from such investment transactions, the transfer pricing provisions do not apply.

KPMG observation

The tribunal’s decision could be viewed by taxpayers as support for a claim that the transfer pricing provisions do not apply to transactions that do not give rise to income.

Read a June 2013 report [PDF 196 KB] prepared by the KPMG member firm in India: Transfer pricing provisions not applicable to transactions which do not give rise to income

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

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