INDIA Law and Practice Contributed by: Deepak Chopra, Harpreet Singh Ajmani, Rohan Khare, Pulkit Pandey and Priyam Bhatnagar, AZB & Partners
However, having said so, it would be pertinent to mention that where there is a conflict between the statutory provisions and the OECD Guide - lines, the Indian judiciary has leaned in favour of interpretating the law as per the statutory provi - sions. Illustratively, the OECD recognises use of multiple-year data for comparability, however, Rule 10B of the IT Rules gives preference to use of single-year data. Thus, on account of this mismatch, the courts have interpretated that the provisions of Rule 10B of the IT Rules would take precedence over the OECD Guidelines. 9.2 Arm’s Length Principle The existing transfer pricing provisions allow determination of ALP in terms of the prescribed methods and also gives an option to an eligible taxpayer to exercise an option of safe harbour which is an alternate mechanism to benchmark the related-party transactions, which is a for - mulary apportionment approach. In this regard, in terms of explanation of Section 92CB(2) of the IT Act, “safe harbour” means circumstances in which the Tax Authorities should accept the transfer price or income, as declared by the tax - payer, if circumstances as provided under Rule 10TD of the IT Rules are satisfied. 9.3 Impact of the Base Erosion and Profit Shifting (BEPS) Project Consequent to the BEPS action plans, India has introduced various changes in its domestic transfer pricing regulations, including the follow - ing. • Thin Capitalisation – the provision to limit interest deduction to 30% of EBIDTA was introduced in India in 2017 with a carry-for - ward period of eight years for balance interest amount. This provision applies for interest payments to the AEs or any lender (to whom the AEs have provided an explicit or implicit
guarantee) exceeding INR10 million. In 2020, interest payments on loans taken from an Indian branch of a foreign bank have been excluded from the purview of the provision for limitation of interest deduction. • Three-tier transfer pricing documentation – the rules pertaining to filing of master file and CbC report along with the local file or transfer pricing study discussed in detail in 8.2 Trans- fer Pricing Documentation were introduced in 2016 pursuant to the introduction of BEPS Action Plan 13. 9.4 Impact of BEPS 2.0 One of the most interesting developments post introduction of BEPS 2.0 was the introduction of the Equalisation Levy (EL) by insertion of Chapter VIII to the Finance Act, 2016 and 2020, whereby a levy was charged on specified services/e- commerce services provided by a non-resident to an Indian resident. However, by way of the Finance Act (No 2), 2024 and the Finance Act, 2025, a sunset clause has been inserted thereby restricting the applicability of EL on the speci - fied services and e-commerce services from the specified dates. 9.5 Entities Bearing the Risk of Another Entity’s Operations The Indian Transfer Pricing Regulations do not contain any specific provisions permitting – or restricting – an entity in terms of bearing the risk of another entity’s operations by guaranteeing the other entity a return. Practically, limited-risk structures being compensated on a cost-plus basis are quite common in India for MNEs. For this, Indian taxpayers generally place reliance on the overall transfer pricing principles pro - vided under the Indian law as well as interna - tional transfer pricing guidelines issued by the OECD, the UN, and others, to determine a suit - able business/pricing model for their intra-group
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