INDIA Law and Practice Contributed by: Deepak Chopra, Harpreet Singh Ajmani, Rohan Khare, Pulkit Pandey and Priyam Bhatnagar, AZB & Partners
In this context, the following key terms defined under Section 286 of the IT Act are as follows. • “Alternate reporting entity” means any constituent entity of the international group that has been designated by such group, in the place of the parent entity, to furnish the report as prescribed under the law. “Con- stituent entity” means (i) any separate entity of an international group that is included in the consolidated financial statement of the said group for financial reporting purposes, or may be so included for the said purpose, if the equity share of any entity of the inter - national group were to be listed on a stock exchange; (ii) any such entity that is excluded from the consolidated financial statement of the international group solely on the basis of size or materiality; or (iii) any permanent establishment of any separate business entity of the international group included in sub- clause (i) or sub-clause (ii), if such business unit prepares a separate financial state - ment for such permanent establishment for financial reporting, regulatory, tax reporting or internal management control purposes. “Group” includes a parent entity and all the entities in respect of which, for the reason of ownership or control, a consolidated financial statement for financial reporting purposes (i) is required to be prepared under any law for the time being in force or the accounting standards of the country or territory of which the parent entity is resident; or (ii) would have been required to be prepared had the equity shares of any of the enterprises were listed on a stock exchange in the country or territory of which the parent entity is resident. “Interna- tional group” means any group that includes (i) two or more enterprises which are resident of different countries or territories; or (ii) an enterprise, being a resident of one country
or territory, which carries on any business through a permanent establishment in other countries or territories. “Parent entity” means a constituent entity, of an international group holding, directly or indirectly, an interest in one or more of the other constituent entities of the international group, such that (i) it is required to prepare a consolidated financial statement under any law for the time being in force or the accounting standards of the country or territory of which the entity is resident; or (ii) it would have been required to prepare a consolidated financial statement had the equity shares of any of the enter - prises were listed on a stock exchange, and, there is no other constituent entity of such group which, due to ownership of any inter - est, directly or indirectly, in the first mentioned constituent entity, is required to prepare a consolidated financial statement, in accord - ance with the law. 9. Alignment With OECD Transfer Pricing Guidelines 9.1 Alignment and Differences Though India is not a member of the OECD, India is still a key partner country that actively par - ticipates in various committees, workshops and working groups of the OECD. The OECD and India have enhanced their co-operation in deal - ing with issues related to transfer pricing and to promote better tax compliance to improve the avoid cross border disputes. The transfer pricing rules in India largely follow the principles which were enunciated in OECD Transfer Pricing Guidelines and United Nations Model Transfer Pricing Regulations. More often than not, even the judiciary has recognised and takes cogni - sance of the OECD Guidelines issued from time to time to adjudicate on litigation between the taxpayer and Revenue Authorities.
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