Transfer Pricing

[Siraj Shaikh]

Company enters into international transactions with an associated enterprise. This associated enterprise is the only customer and the sole distributor for this company. Company has launched a new product in the market. To penetrate the market, the company enters the market with a low price. And because of this, the profitability of the company is afftected, i.e., earlier the NP ratio was 20% and now the NP ratio is 14%.

Can some of you highlights the transfer pricing issues with reference to the case laws???

[Ankur Agrawal]

in my opinion, transfer pricing provisions are very well apply in the aforesaid condition. In TP provisions no where it is mention that lowering of price is allow in case of new company or in case when new product is launching or in case when compnay wants to penetrate the market.

its simple. company is lowering its profit by declining sales prices, is definately covered in the trasnfer pricing norms,

 

AI Summary

Company's Market Penetration Strategy Raises Transfer Pricing Concerns; Profit Ratio Drops from 20% to 14% A company involved in international transactions with an associated enterprise, which is its only customer and distributor, has launched a new product at a low price to penetrate the market. This strategy reduced its net profit ratio from 20% to 14%. A forum participant questioned the transfer pricing implications, while a respondent noted that transfer pricing provisions apply, as they do not allow for price reductions for new companies or products to penetrate markets, indicating that the company's actions fall under transfer pricing regulations.