An Indian multinational software
company, engaged in providing complete software solutions
to its clients, has subsidiaries in several countries. Its
UK subsidiary provides sales and technical support services
to the Indian parent. The objective was to formulate a transfer
pricing policy so as to simultaneously comply with the Indian
and the UK transfer pricing regulations and to maximize
the after tax cash flows for the Group at large. Based on
our transfer pricing study, almost 85% of the total profits
of the Group accrued to the India parent, which enjoyed
complete tax exemption under section 10A, with the result
that the effective tax rate for the Group at large, worked
out to only 1.59 %! In this way, we could successfully use
transfer pricing as an effective tax-planning tool to legitimately
reduce the tax incidence.
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