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Adam Wake
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Globalization has led to an increase in cross-border and international transactions. Along with the same, governments’ incentives to induce investment have also led to tax havens in certain areas. Businesses often use such provisions to reduce their tax burden and for tax planning. However, transactions between related parties need to be at Arm’s length price. Transfer Pricing applies to transactions between related parties. The Income Tax Act governs transfer pricing in India.
Are transfer pricing provisions applicable to all transactions?
Transfer Pricing in India is governed by Section 92 of the Income-tax Act, and the provisions apply to domestic and international transactions. Whereas transfer pricing provisions in India would apply to international transactions regardless of the amount of such transaction, domestic transactions are only to be considered for an amount greater than 20 crore and specific deductions being taken by the company. While there is a distinction between domestic and international transactions, there is no distinction concerning the nature of transactions. Transfer pricing in India would apply to all transactions between the related parties.
What guidelines must a company follow with regards to transfer pricing?
Transfer Pricing provisions in India are quite comprehensive and state the documents required to be maintained and the provisions to obtain an audit report from a Chartered Accountant. All records should be properly documented concerning every transaction between the company and the associated enterprise. The companies also require to get a certificate from a CA that the transactions have been conducted or not conducted at Arm’s length price and the methods used to compute such Arm’s length price by the company.
How can companies safeguard themselves in case of transfer pricing?
A company entering into any transaction with a related or associated enterprise should ensure that the transactions are conducted at Arm’s length price. In a situation wherein the calculation of the Arm’s length price is complicated, or the company may not have a benchmark to fall upon, the company may approach the tax authorities and ask them to calculate the Arm’s length price on their behalf.
Transfer Pricing in India enables the company to approach the tax authorities through an advance pricing agreement and remove the probability of dispute with tax authorities later.
Tax authorities may also accept the company’s pricing in a scenario wherein the company’s price and Arm’s length price is within an acceptable range of the tax authorities.
Transfer Pricing in India and International provisions
Transfer Pricing provisions in India are slowly adapting to and accepting internationally accepted standards as well. The Indian laws have been formulated laws in line with those provided by the OECD and adopted a county by country reporting and preparation of master file for greater compliance and transparency.
Conclusion
Transfer Pricing in India has been implemented to curb tax evasion in the garb of tax saving and tax planning. Businesses and companies can leverage consulting services of companies such as AKM Global, KPMG, Deloitte, etc., to ensure that they can properly plan for their transactions without violation of any laws.
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Adam Wake
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The adaption to the digital economy has been a game-changer for many budding entrepreneurs as it has allowed them to start their own business. However, most entrepreneurs struggle with the complex tax laws associated with a business. One would need to look at a variety of laws before filing one's income tax return. Apart from that, GST also needs to be considered. In such circumstances, it is better to hire a professional who can look after your tax requirements and considerations. Most entrepreneurs, however, are reluctant to spend or pay the fees to hire a professional tax consultant. Tax advisory services should not be viewed as an expense but instead as an investment by entrepreneurs. Not only will such a service help you in the present but has future benefits as well.
Here is why hiring a tax consultant is an important aspect of the growth of your business:
1. Subject expertise:
A tax consultant is an expert in the aforementioned topics as he is involved with such transactions daily. This allows them to comprehend the situation in a faster manner and also to find quick solutions to daily problems.
2. Tax Planning:
Most entrepreneurs often confuse taxations as merely filing of tax returns. Tax return filing comprises a variety of topics which also includes tax planning. A tax consultant can help you reduce the total tax paid by your business by taking the help of various provisions in the law. This will allow the business to retain more profits to reinvest in the business. Tax advisory services are not limited to tax filing and payment and could help one establish the structure of the business as well to take the best advantage of available tax law
3. Foresight:
As an entrepreneur, the sole focus of the owner would be on the business and how to increase profits. A tax advisor or consultant however would be able to see beyond such numbers and how it will affect your overall tax liability. If merely profits are considered, many transactions would be conducted which might not be allowed by tax laws. Through tax advisory services, one can be aware of such tax laws and reduce such risks.
4. Time and Cost savings:
Tax advisory services result in both cost and time savings for the entrepreneur. A tax advisor would be able to file your tax returns much faster than if done by one on their own. Such saved time can be invested in the business. Apart from time, the knowledge about relevant laws also would allow the tax advisor to reduce your taxes wherever possible. This results in savings of costs as well. Many a time, the cost-saving through such means and the time saved would be much worth much more than the fees paid to such professionals.
Professional services are often subjected to ridicule as it is felt that their services are too exorbitant. However, a good tax consultant would not only help you plan and grow your business but also provide you proper and relevant guidance that would result in cost reduction, higher efficiency and allow you to focus on your business.
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Adam Wake
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We are familiar with the successful acquisition of Pixar and Disney, Exxon and Mobil, and merger of Sirius Satellite Radio and XM Satellite radio. Behind every successful acquisition or merger is a well-executed quality financial due diligence. Due diligence conducts a complete analysis of the business and hence avoids the possibility of a lousy investment.Â
What is Financial Due Diligence?
Financial due diligence is an analysis performed to obtain accurate figures on financial numbers and forecasts of a business plan before finalizing on a particular transaction. It helps identify the actual value of the assets and liabilities and reduces the scope of any inconsistencies that could lead to a poor investment.
Aspects of Steps involved in Financial Due Diligence
History
The details of the company and the original promoters of business should be analyzed and verified. It should also include the history of its products, market supplies, expenses, and operations.
Accounting policies
The accounting principles followed by the entity should be determined, and its aptness should be confirmed.
Examining the profit and loss account of the entity
1. An Inspection for any unusual items of income that could lead to an operational loss or results should be conducted.
2. A comparison of the actual figures and budgeted figures for a period of review and those of the previous accounting period should be made.
Analyzing the net worth
1. Evaluation on which assets have been valued and which liability has to be recognized
2. The businesses’ net worth should be considered after examining the impact of the over and undervaluation of assets.
Tax payment
Examine if the business or entity was regular in its taxes, for both State and Central. If an irregularity is detected, then arrangements should be conducted to clear off arrears.
Economic climate
Economic conditions can impact the course of the business. Hence a clear and concise examination of financial status and its impacts on business should be conducted.
Cash flow
The cash flow and patterns of the company should be determined to ascertain the company’s financial capabilities. An analysis of the company’s capacity to meet its commitments (including creditors, banks, government, stakeholders) and its ability to deploy its funds should be verified.
Financial estimation
The projection for the upcoming five years, which includes a detailed consideration of workings and appropriateness should be devised. It also helps to calculate the short and long term risks involved.
Workforce
The status of the workforce and their retention should be governed based on the principles set by the new officials and their regulations.
Legal Compliance
A conclusion should be drawn on the laws applicable to the entity. If the company is found to be irregular in its legal compliance, then it could result in disciplinary charges.
Conclusion
Financial due diligence is mandatory for understanding the financial position of the entity, discover any hidden liabilities, anticipating the future financial situation, and assisting the investors in decision making. Therefore, it steers investors away from investment disasters.
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December 19, 2021
Adam Wake
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Outsourcing is a business tactic in which an establishment hires another firm or an individual to accomplish tasks, handle operations or deliver services that are either usually performed or had earlier been done by the company's employees.
Companies today can outsource several tasks or services. They frequently outsource information technology services, technical support, manufacturing services, and financial or accounting services.
Our country has now become a major economic power. In recent times, India has become a key provider of outsourcing services to native English-speaking states like the US, Australia, the UK, Canada, Ireland, and New Zealand.
India majorly provides accounting services to global business organizations. Low costs of the services and the increasing usage of the English language in the country are two crucial reasons for outsourcing services to India. The other factor of our emergence as an outsourcing provider is the sheer hard work and talent of our citizens.
Outsourcing business roles are occasionally known as contracting out or business process outsourcing.
The advantages of outsourcing accounting services in India are:
High Level of Accuracy
A single mistake can spoil the entire process. Indian outsourcing accounting services can be beneficial when it comes to producing precise results that can be high and closer to 100%. This guarantees improved management in back-office jobs. Devoted employees in BPOs manage accounting and payroll services efficiently and easily.
Cost-effective
It is one of the major advantages of outsourcing accounting services in India. A company can save a huge amount of money on operational expenses and utilize it towards the funding of core business developments.
Exposing Frauds and Scams
Outsourcing accounting services to professional and qualified outsourcing companies can help to control any possible fraud or scam by workers within the organization. Outsourcing firms can also help to expose any existing scams or fraud within the company.
Evading Penalties or Extra Charges
Inapt payroll management could lead to imprecise or inaccurate tax filing that could result in tax penalties or fees. Outsourcing services to pros can save companies these extra charges and ensure accurate and up to the mark payroll processing.
Time-saving and Easy to Handle
Accounting is time-consuming, and several companies tend to lose focus from their main job while handling this process. Therefore, outsourcing to accounting firms in India frees up your time for further value-added revenue-generating tasks and focusing on your goal. Also, by outsourcing the accounting errands to companies based in India, you have to only deal with the contractual obligations.
Profit from Expertise
The outsourcing firms in India are extremely proficient in carrying out the given tasks. Firms here have access to all modern accounting software. Also, you don't have to pay a full-time salary to the expert employees, and you only have to pay for the number of hours they work for.
These are some of the advantages of hiring outsourcing accounting firms in India. Now, it's up to you to decide whether you want to avail of these benefits or not.
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October 29, 2019