CA Prachi Shah Dinesh R. Shah & Co. Chartered Accountants Ahmedabad

& CA Prachi Shah Dinesh R. Shah & Co. Chartered Accountants Ahmedabad

Documentation (Rule 10D) • Accountant’s Report including Practitioners’ Checklist • Confirmation letter from client about factual data • Checklist for carrying out Audit

Documentation • Check List of Documentation [ Rule 10D] • Questionnaire to be sent to the Client • Check List for Carrying out the Audit • Confirmation Letter from Client about Factual Data • Accountant’s Report including Practitioners’ Checklist

Reliance on Supporting Documentation • Judicial pronouncement • Accounting Standard, Guidance notes, Standard on Accounting issued by ICAI • In differences in the opinion, both the view and relevant information shall be referred • Exercise reasonable care to ensure that prima facie and based on information that is made available, the list of AE/Related parties and list of International/domestic transaction is reasonably complete and correct • Verify the computation of ALP whether in accordance with the records maintained along with the data of uncontrolled transactions

Check list of Documentation [Rule 10D] • Rule 10D provides 13 items of mandatory documentation and additional 7 items as supporting documentation • These can be broadly classified into 3 types: • Documents retained for period of 8 Years Enterprise-wise documents Transaction specific documents Computation related documents

Enterprise-wise documents • Ownership Structure of the Tested Party • Profile of Multinational Group / Group companies with whom Domestic Transaction have been entered into by the Tested Party • Broad description of the business of the Tested Party as well as of AE/related party and industry in which Tested Party operates.

Transaction specific documents • Nature & Terms of transaction entered into with each AE. • Description of FAR Analysis • Record of Economic & market Analysis, Forecasts, Budgets or any other Financial estimates which may have bearing on International transaction. • Record of uncontrolled transaction taken into account for analyzing & evaluating their comparability

Computation related documents • Description of methods considered for determining the Arm’s Length Price (ALP). • Record of actual working carried out for determining the ALP. • Assumptions, Policies & Price Negotiations, if any, which have critically affected determination of ALP. • Details of Adjustments • Any Other Information.

Questionnaire to be sent to the Client • Audited financial statement • Shareholding Pattern and overall structure of the group • Details of the transactions entered into by the company with its AE. • Detailed break up party wise and transaction wise related party disclosure as required by AS 18 • Detailed of foreign exchange gain/loss as reported along with the reconciliation with the related party disclosure • Copy of Documents to prove the identity, genuineness of transactions and creditworthiness of the AE’s. • Certain other details of transactions • Details of Reimbursement with supporting documents.

Questionnaire to be sent to the Client • Copy of the agreement entered into with AE’s / Related Party • Copy of the approval received from RBI under FEMA, if any • Copy of the order received from Special Valuation Branch issued by the Custom Authorities • Transfer Pricing Policy of the group for determination of inter-company transfer price • Details of transactions for which no consideration has been charged/received, if any

Questionnaire to be sent to the Client • Details of Contingent Liabilities and guarantees/ advances for borrowings appearing in audited accounts • Details of payments made by the AE. If there are delays, then the number of days of delay and the imputed cost • Segmental Accounts of different functional activities ( manufacturing, distribution, provision of services, etc.) and the basis on which the cost has been allocated

Questionnaire to be sent to the Client • Details of same/ similar type of transactions entered into with independent third parties which can be considered as internal comparable uncontrolled transaction for the International transactions with AE’s • Transfer Pricing Study report providing Functional analysis for the different types of the activities, the methodology for determination of ALP, benchmarking exercise carried out for arriving at the ALP • Details as regards any change in the methodology followed as compared to the earlier years and the reason for change • Sample Copies of invoice of international transactions

Check List for Carrying out the Audit • Questionnaire to be sent to the client before commencement of assignment • Check list to be sent for information/data and documents • Check list for verifying contents of Form 3CEB • Confirmation letter about the Factual data • Transfer Pricing Study report • Standard notes for issuance of the Form 3CEB • Transfer Pricing Accountants’ report of the foreign party • Management representation letter

Check List for Carrying out the Audit • Trial Balance • Copies of Agreements • Register of Director ( Section 301) • Register of Loans and Investment ( Section 372A) • Form 27Q copies ( TDS on Payment to Non-resident) • Segment Financial Accounts • Budget / Forecast • In case of the reimbursement transactions – supporting back to back invoices

Confirmation Letter from Client about Factual Data • The Confirmation letter is essential for : • Confirming that reports issued is solely used for internal purpose for supporting inter-company policies. If the Report is used for some other purpose then the client is required to obtain written consent of the Accountant. • Confirmation regarding all information's were made available and were reliable, genuine and complete. • Confirmation that company has not entered into any transaction with any uncontrolled third parties under similar condition, which are comparable to the international transaction that our company has entered into with our AE.

Standard Notes for issuance of Form 3CEB • Notes forming part of 3CEB • If Assessee has exercised option under proviso to section 92C(2) of the Income Tax Act 1961 the same should be the part of such Standard notes. • Further we can include notes if any Quantity details are not provided or No Arm’s Length Price has been ascertained for any transactions.

Transactional ExaminationFocus Areas • Identification of International/Domestic Transaction • Nature of Transactions • Availability of Comparables in the market • Reliability and accuracy of data for comparables

Identification Identification mean • To scrutinize the transactions with AEs/ related parties e.g. Transactions involving Tangible assets or Intangible Assets And • To ascertain which type of transactions have been made with its AE’s/related party e.g. Purchase, Sale, Services, Reimbursement, Royalty etc.

Nature • Nature to mean if transaction have been identified as Purchase transaction then whether Purchase to say Purchase of RM, Purchase of Goods, Purchase of Services. • This issue is technical because If nature is decided properly then selection of method to determine Arm’s Length will be relaxed.

Availability The most technical issue related to Transactional Examination is to find out comparable transactions which have same effects that of the Assessee companysuch as • An independent enterprises sells the same product or services as it is sold between two associated enterprises • The uncontrolled transaction should reflect goods of a similar type, quality and quantity as those between associated enterprises and • It relate to transaction taking place at a similar time and stage in the production/distribution chain, with similar condition.

Reliability • Transactions can be taken as comparable only when source of data is reliable. • Generally, publically available sources are reliable. E.g. Company Affairs Site, Company’s own site • But it doesn’t mean data from private source is not reliable but reliability should be measured for any type of transactions.

Accountant’s Report • Compile and furnish details of international transactions for reporting in form 3CEB • Ensure Completeness of the listing of International transactions • Ensure Completeness of the list of AE's • Compute the ALP and select the MAM

Annexure to Form No 3CEB includes 3 Parts • Part A – General Information • Part B – International transactions • Part C – Specified Domestic transactions

Practitioners’ Checklist

Practitioners’ Checklist….

Practitioners’ Checklist…. Item 1,2,3 and 5: Name, Address, PAN Number and Status Copy of the PAN Card; Latest Assessment order; In case of change in name, copy of the certificate evidencing such change from ROC or other relevant authority as applicable; In case of change of address, copy of communication with the AO intimating the change of address.

Practitioners’ Checklist…. Item 4 : Nature of business or activities of the assessee Code for nature of business to be filled in as per instructions for filling form ITR ; Cross check with the relevant column in the tax audit report; Cross check with the disclosure in the audited accounts as regards segment reporting; Peruse the Directors’ Report for description of the business activities of the assessee; Cross check with the relevant column in the return of income; Peruse the DTP Study Report for the description of the business mentioned therein; Peruse the Company’s Memorandum of Association or a firm’s partnership deed; Make sure that the businesses of the eligible units are also mentioned, even though the units are captive in nature.

Practitioners’ Checklist…. Item 9 : Aggregate value of SDT as per books of account Get the break-up of all the SDTs and aggregate them, whether they are items of income or expense; Take a management certificate that these are the only SDTs entered into during the year; Cross check with the transactions reported at item 28 of Form 10CCB; Cross check with the transactions reported at item 18 of Form 3CD; Cross check with the related parties disclosure to the extent possible so as to ensure that nothing reported there and that also ought to have been considered in Form 3CEB is missed out; Cross check with the reporting in Part C of this report.

Practitioners’ Checklist…. Item 21:List of associated enterprise with whom the assessee has entered into specified domestic transactions List of ownership structure of the assessee (required under Rule 10D(1)(a); Examine the nature of business carried on by them from the information available with the assessee; cross check with the web sites, the annual accounts of the assessee and/or the annual accounts of the AEs, the contracts entered into with them, the public database etc. (Rule 10D(1)(b) / (c)); Get the completed list of AEs with whom the assessee has entered into SDTs; Cross check with the ledger accounts of all AEs gathered in (a) above to make sure that the list provided in (c) is exhaustive;

Practitioners’ Checklist…. Item 21 …. Take a management certificate that these are the only associated enterprises and the only SDTs; Cross check with the disclosure made in the Register maintained u/s. 301 of the Companies Act; Cross check with the declarations filed by the directors u/s. 299 of the Companies Act; Cross check with the disclosure made in the books of account as per AS 18; Cross check with the disclosures made in Form 3CD in relation to section 40A(2); Cross check with the segment reporting made by the assessee as per AS 17;

Practitioners’ Checklist…. Item 21 …. Get details of the geographical locations from which the assessee is carrying on business since two different geographical locations carrying on same business may also be regarded as two AE for SDT; Cross check with the list of shareholders of a closely held company and the shareholding pattern disclosed by a public listed company; In case of listed companies, examine the disclosures made by the company under SEBI requirements in respect of group companies and promoter group details of the company; Also examine any other disclosures made under other regulatory requirements; Check returns of income and assessment records of past years to check if any issues in respect of section 40A(2), 80A(6), 80IA (8) or 80IA (10) had arisen.

Practitioners’ Checklist…. Item 22 : Related Party Expenditure (Section 40A(2)) Identify the 40A(2) parties out of the list of AEs furnished and examined as above with the help of the chart set out at Appendix 5; Get the details of each of the transactions covered u/s. 40A(2) like the nature of goods and services involved, quantum and value of each transaction (required under Rule 10D(1)(d)); Cross check with the tax audit report; Examine the contracts and the terms and conditions of such transactions (required under Rule 10D(1)(d)); Get a complete log of the functions performed, risks assumed and assets employed by the assessee and by the AEs in each of the transactions so as to be able to carry out a proper TP analysis (required under Rule 10D(1)(e)), Also examine the contracts referred to in (d) above for this;

Practitioners’ Checklist…. Item 22 : Related Party Expenditure (Section 40A(2)) Verify the transactions reported from the invoices and other documentary evidences relating thereto (may be on a test check basis); Ensure the maintenance of the necessary documentation for enabling the TP study, either from TP Study report and/or independently (Rule 10D (1) (f) to Rule 10D (1) (m)); Review the documentation keeping in view the illustrative list provided in Rule 10D(3). See Appendix 2.

Practitioners’ Checklist…. Item 23 : Inter unit transfer of goods and services (Section 80IA(8)) Cross check with Audit Report in Form 10CCB; Peruse the accounts maintained in respect of the eligible unit or undertaking; Cross check the inter unit transfers in the stock records including the summary stated in the tax audit report or in the back up workings in respect thereof in case of stock transfers; Peruse the documentation like challans, proforma invoices, excise records, gate passes, employee log books, etc. for verification of inter unit transfers of goods and services; Ensure that allocation of common head office or other expenses have been done, preferably supported by a cost accountant certificate relating to the appropriateness of allocation keys based on cost accounting principles; Examine all TP documentation as enumerated in relation to item 22 above.

Practitioners’ Checklist…. Item 24 : Inter AE transfer of goods and services (Section 80IA(10)) The practitioner may choose to mention a disclaimer note so as to convey that the section talks of “close connection or any other reason” while the Form talks of “AEs”. In absence of specific definition of “close connection” the reporting is restricted to persons referred to in section 40A(2) only; All other check points as mentioned in relation to item 22 and 23 above may be kept in view.

Practitioners’ Checklist…. Item 25 : Any other SDTs The item may have to be filled in only after any other transactions are introduced within the meaning of SDTs by virtue of the powers vested in the CBDT under Section 92BA(vi). Till such time, this portion may have to be marked as “Not Applicable”.

Thank You Keep

CA Prachi Shah Dinesh R. Shah & Co. Chartered Accountants Ahmedabad