Proposed Changes to Transfer Pricing Assessment

The Indian government has introduced significant changes to the transfer pricing (TP) assessment process in the Budget 2025. These changes aim to reduce compliance burdens for businesses and streamline tax administration. Transfer pricing assessments often lead to lengthy litigation, creating challenges for companies involved in international or specified domestic transactions with related parties. The proposed reforms are designed to simplify the process and enhance tax certainty, making it easier for businesses to operate.

Understanding Transfer Pricing and Its Challenges

Transfer pricing refers to the pricing of goods, services, and intangibles between related parties, such as subsidiaries of a multinational corporation. The Arm’s Length Price (ALP) is the fair market value of these transactions. Currently, companies must conduct a transfer pricing review annually to determine the ALP. This requirement can lead to repetitive analyses, especially when businesses engage in similar transactions year after year.

The existing process creates unnecessary paperwork for both businesses and tax officials. Many companies find themselves in a cycle of compliance that does not reflect any significant changes in their operations. This situation often results in disputes and litigation, which can be costly and time-consuming. The proposed changes in the Budget 2025 aim to address these issues by introducing a more efficient assessment mechanism.

The Proposed Block Assessment Mechanism

One of the key proposals in the Budget 2025 is the introduction of a block assessment mechanism. Under this new system, once the ALP is determined for a particular year, it will automatically apply to similar transactions for the next two years. This means that businesses will not have to repeat the same analysis annually, reducing the compliance burden significantly.

To opt for this block assessment, business entities must submit a request. The transfer pricing officer will then have one month to decide on the validity of the request. This streamlined approach is expected to save time and resources for both businesses and tax authorities. Additionally, tax authorities will have the ability to adjust a company’s income for the subsequent two years based on the previously determined ALP. This adjustment must be completed within a specified timeframe, ensuring that the process remains efficient.

Industry Reactions and Considerations

The response from transfer pricing experts and industry representatives to the proposed changes has been largely positive. Many see it as a step towards reducing year-on-year litigation and enhancing the ease of doing business. Mitesh Jain, a partner at Economic Laws Practice, noted that while the amendment appears beneficial, it could also pose challenges for taxpayers. Once a taxpayer opts for the ALP determination, it becomes binding for the next two years. This could lead to complications if the transfer pricing officer makes adjustments in the first year, affecting the subsequent years even if those cases are not selected for scrutiny.

Aayush Nagpal, a tax partner at Shardul Amarchand Mangaldas, echoed these sentiments. He emphasized the need for clarity regarding the transfer pricing officer’s approach to resolving disputes and the scope of appeals available to taxpayers. The introduction of this legislation aligns with the government’s broader objective of enhancing tax certainty and improving the business environment. However, industry experts stress the importance of clear guidelines to address any ambiguities that may arise during implementation.


Observer Voice is the one stop site for National, International news, Editorโ€™s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.

Follow Us on Twitter, Instagram, Facebook, & LinkedIn

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button