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2015 (3) TMI 1031 - DELHI HIGH COURT

2015 (3) TMI 1031 - DELHI HIGH COURT - TMI - Determination of arms' length rate of interest - ITAT holding that the interest @ 4% p.a. charged by the respondent assessee from its subsidiary i.e. the Associated Enterprise was arm's length rate of interest and the adjustment made in the Assessment Order determining the arms' length rate of interest at 12.20% was unwarranted - Held that:- We have no hesitation in holding that the interest rate should be the market determined interest ra .....

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ncy specific loans/ deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest.

The methodology recommended by Klaus Vogel Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign .....

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ermining the interest rate in the extant case. PLR rates are not applicable to loans to be re-paid in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply.

Income-Tax Appellate Tribunal was right in in holding that the interest @ 4% p.a. charged by the respondent assessee from its subsidiary i.e. the Associated Enterprise was arm's length rate of interest and the adjustment ma .....

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arm's length rate of interest, paid to the assessed, i.e. Cotton Naturals (I) Pvt. Ltd., by their subsidiary M/s JPC Equestrian, a company registered in the United States of America. The appeal emanates from the order of the Income Tax Appellate Tribunal (Tribunal, for short), dated 30th October, 2013, and pertains to the assessment year 2007- 08. 2. On the basis of the contentions raised by the parties, the following substantial question of law needs to be answered and decided: 1. Whether .....

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d them on the aforesaid substantial question. 4. The respondent assessee, an Indian company was engaged during the relevant period, in the business of manufacture and exports of rider apparels like riding breeches, jodhpurs, socks, riding jackets, horse blankets, fly sheets, riding boots, shirts, saddle pads and riding helmets. The Headquarter of the assessed was located in Delhi, India with presence in 10 countries through designated channel partners and distributors. However, for the purpose o .....

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Inc 10,50,000 $ Interest Received Rs.20,52,101/- 6. The respondent assessee had selected the Comparable Uncontrolled Price method (CUP method, for short) to benchmark sale of equestrian apparels and the interest received on the loan. The respondent assessee had declared that the interest received at the rate of 4% was comparable with the export packing credit rate obtained from independent banks in India. 7. The Transfer Pricing Officer (TPO, for short) in his report enumerated several reasons, .....

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s points CUP Rate LIBOR 700 basis points Add: Adjustment for security Not computed Final CUP Rate LIBOR + 700 basis points As the currency in which the loan is exte nded to the AE is GBP, 6-month GBP LIBOR (sic) is considered. These rates are given as per Annexure - A. The average 6-month GBP LIBOR (sic) is arrived at 5.224% p.a. Thus the CUP rate is arrived at as under. CUP Rate> LIBOR + 700 basis points >5.224%+7% >12.224% Keeping in view that no security is offered by the subsidiary .....

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lder funds. Funds had flown from one shareholder to another, and the reality being that both set of shareholders were the same, the security aspect was embedded by default in the transaction. The DRP also noted that the Prime Lending Rate (PLR, for short) fixed by the Reserve Bank of India, ranged from 10.25% to 10.75% in April, 2006 to 12.25% to 12.50% in March, 2007. In view of the above stated, the upward revision of interest rate i.e. the arm's length interest was computed as ₹ 62, .....

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ed order and for the sake of convenience we would also like to quote the same: "11. We have carefully considered the submissions and perused the records, we find that the assessee company in this case is a leading manufacturer of rider apparel. Assessee entered into international transaction as under:- Equestrian Apparel sold to JPC Equestrian Inc 48191540/- Loan provided to JPC Equestrian Inc 10,50,000 $ 12. As per the TP document, CUP method has been chosen to benchmark the sale of appare .....

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ndian market. He noted that lending or borrowing is not one of the main businesses of the taxpayer. He opined that what is to be considered is the prevalent interest that could have been earned by advancing a loan to an unrelated party in India with the same financial health as that of the tax payer's subsidiary. The TPO further observed that the taxpayer has not submitted the financial of the subsidiary, hence the . financial healthy of the subsidiary cannot be judged. The TPO further noted .....

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hat, had the AE of the assessee company would have got loan from any bank or financial institution in the place of residency at Libor rate, then why it did not avail of loan at such a rate. Assessing Officer observed that, no company in India would like to invest in the form of loan outside India and that also without security as the interest returns in India would be higher than those prevailing in developed markets. Finally, Assessing Officer held that interest rate at 17.26% would be fair and .....

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the PLR of RBI for the financial year 2007-08. In accordance with the above decision, the TPO adopted 13.25% as the rate of arms length interest rate. 14. We note that CUP method is the most appropriate method in order to ascertain arms length price of the international transaction as that of the assessee. We agree with the assessee's contention that where the transaction was of lending money in foreign currency to its foreign subsidiaries the comparable transactions, therefore, was of fore .....

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t was held by ITAT that the assessee had given the loan to the associate enterprise in U.S. dollars, and in such a situation when the transaction was in foreign currency, and the transaction was an international transactions, then the transaction would have to be looked upon by applying the commercial principles in regard to international transactions. In such a situation domestic prime lending would have no applicability and the international rate fixed being LIBOR rate would have to be adopted .....

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no case that assessee would benefit by shifting profits outside India. This view is supported by Bangalore Tribunal decision in this case Philips Software Centre P Ltd. vs. ACIT Supra and Mumbai Tribunal in the case of I.T.O. vs. Zydus Altana Health Care P Ltd. Supra. 19. We further note that in this case the loan agreement was for fixed rate of interest. The LIBOR has been accepted in decision referred above as the most suitable bench mark for judging Arms' length price in case for foreign .....

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bunal in ITA No. 2148/Mds/2010. In the instant case it has been held: 11. We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0% optional convertible preferential shares. Thus it is noticed that the funds raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the as .....

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then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the Associated Enterprises. As it is noticed that the average of the LIBOR rate for 1.4./2005 to 31.3.2006 is 4.42% and the assessee has charged interest at 6% which is hig .....

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eptember, 2011; Tata Autocomp Systems Ltd. vs. ACIT - ITA No. 7354/Mum/2011, dated 30th April, 2012; M/s Aurobindo Pharma Ltd. vs. ACIT - ITA No. 1866/Hyd/2012 dt. 29th November, 2013; Siva Ventures Ltd. vs. ACIT - ITA No. 2161/Mds/2011, dated 27th June, 2013; Apollo Tyres Ltd. vs. ACIT - ITA No. 616/Coch/2011 dated 20th December, 2013; Hinduja Global Solutions Ltd. vs. Addl. CIT - ITA No. 254/Mum/2013, dated 5th June, 2013; M/s PMP Auto components P. Ltd. vs. DCIT - ITA No. 1484/Mum/2014 dated .....

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fers for lending rates from banks in a reasonable market place. The highest 25% and lowest 25% of the values offered are eliminated, and the rate is determined on the remaining 50%. EURIBOR is also calculated and published each day and 15% of the lowest and the highest interest rates quoted by the panel of European banks are eliminated and the remaining 70% form the basis of calculation. 13. The reasoning given in the decision relied upon by the Revenue for applying PLR, namely Logic Micro Syste .....

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e in India, it is more appropriate to consider the potential loss suffered by the assessee in India by not bringing the receivables within the normal period. In fact, the said potential loss of the assessee in India is the ALP factor which contributes to the additional income attributable to the assessee. Therefore, instead of the US rate, the TPO is justified in adopting the Indian rate. 23. While adopting the Indian rate, it is not proper to rely on PLR of the State Bank of India. This is beca .....

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osit rate has to be applied for calculating the interest. Taking into consideration all aspects of the case like interest-free period and piece-meal remittance of the receivables, we fix the ALP interest rate at 5% and direct the Assessing Officer to compute the additional income at the rate of 5% on ₹ 5,52,24,261/- as against 10.25% adopted by the Assessing Officer.‖ (emphasis supplied) 14. In another decision, Nimbus Communications Ltd. vs. ACIT ITA No. 6597/Mum/2009, it stands obs .....

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g and borrowing: ―The difference between lending and borrowing when dealing at arm's length is given in the below table (Assuming X is in India and Y is outside India). Sl. No. Aspect Lending money b X to Y Borrowing Money b X from Y 1 Primary Consideration The primary consideration for X is to maximize its return in terms of interest keeping in view the risk involved. The primary consideration for X is to minimize its rate of interest keeping in view the risk involved. 2 Interest Rate .....

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receivable in India for giving loans to parties with similar credit rating as that of Y (like corporate bonds) and also the level of security offered by Y. X would see what the minimum interest rate it can borrow from Y as interest rates in India are higher when compared to the interest rates charged in ECB loans. Thus the bench marking is based on LIBOR + some basis points depending on the credit of X Indian companies go for External Commercial Borrowings as the interest rates on ECB loans are .....

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n developed markets. Thus while lending money by X (in India) to Y (outside India), the interest rates would be bench marked against those prevailing in India for investing in corporate bonds (which are without security).‖ 16. We would first like to deal with the aforesaid table and the reasoning given in the case of Logic Micro Systems Ltd. (supra) before we advert to other facets of the issue. 17. In our opinion, the reasoning recorded therein suffers from a basic and fundamental fallacy .....

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cannot be restructured. It is not uncommon for manufacturers cum exporters to enter into distribution and marketing agreements with third parties or incorporate subsidiaries in different countries for undertaking marketing and distribution of the products. The Delhi High Court in Commissioner of Income Tax versus EKL Appliances Limited, (2012) 345 ITR 241 (Delhi) referred to the Paragraphs 1.36 to 1.38 of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, 201 .....

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ciated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions. The reason for characterisation of such re-structuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured. 18. Two exceptions have been allowed to the aforesaid principle and they are (i) where the eco .....

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er of Income Tax-III and other connected cases decided on 16th March, 2015 and it was held as under:- ―147. Tax authorities examine a related and associated parties‗ transaction as actually undertaken and structured by the parties. Normally, tax authorities cannot disregard the actual transaction or substitute the same for another transaction as per their perception. Restructuring of legitimate business transaction would be an arbitrary exercise. This legal position stands affirmed i .....

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ade in relation to the transaction, when viewed in their totality, differ from those which would have been adopted by the independent enterprise behaving in a commercially rational manner. The second exception also mandates that actual structure should practically impede the tax authorities from determining an appropriate transfer price. The majority judgment does not record the second condition and holds that in their considered opinion, the second exception governs the instant situation as per .....

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factual finding to this effect by the TPO or the Tribunal in any of the present cases. However, in L.G. Electronics decision (supra), it is observed that if the AMP expenses and when such expenses are beyond the bright line, the transaction viewed in their totality would differ from one which would have been adopted by an independent enterprise behaving in a commercially rational manner. No reason or ground for holding or the ratio, is indicated or stated. There is no material or justification .....

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ide brand value of the intangibles by the third party.‖ 19. It would also be appropriate at this stage to reproduce the following portion from the UN Model Double Taxation Convention Between Developed and Developing Countries, wherein reference was made to the OECD Model Convention Commentary on Paragraph 6 of Article 11, in the following words: ―22. This paragraph reproduces Article 11, paragraph 6, of the OECD Model Convention, the Commentary on which reads as follows: 32. The purp .....

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tioned amount and that the excess part of the interest shall remain taxable according to the laws of the two Contracting States, due regard being had to the other provisions of the Convention. 33. It is clear from the text that for this clause to apply the interest held excessive must be due to a special relationship between the payer and the beneficial owner or between both of them and some other person. There may be cited as examples cases where interest is paid to an individual or legal perso .....

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d to the taxation treatment to be applied to the excess part of the interest, the exact nature of such excess will need to be ascertained according to the circumstances of each case, in order to determine the category of income in which it should be classified for the purposes of applying the provisions of the tax laws of the States concerned and the provisions of the Convention. This paragraph permits only the adjustment of the rate at which interest is charged and not the reclassification of t .....

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all of an interest payment is excessive because the amount of the loan or the terms relating to it (including the rate of interest) are not what would have been agreed upon in the absence of the special relationship. Nevertheless, this paragraph can affect not only the recipient but also the payer of excessive interest and if the law of the State of source permits, the excess amount can be disallowed as a deduction, due regard being had to other applicable provisions of the Convention. If two C .....

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excess, it will be necessary to resort to the mutual agreement procedure provided by the Convention in order to resolve the difficulty. 23. When this issue was last considered, some members of the former Group of Experts pointed out that there are many artificial devices entered into by persons to take advantage of the provisions of Article 11 through, inter alia, creation or assignment of debt claims in respect of which interest is charged. While substance over form rules, abuse of rights prin .....

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means of that creation or assignment.‖ 20. Reverting to the reasoning given, we record that the respondent-assessee had incorporated a subsidiary in United States for undertaking distribution and marketing activities for the products manufactured by them. It is obvious that this was done with the intention to expand and promote exports in the said country and was a legitimate business decision. The transaction of lending of money by the respondent-assessee to the subsidiary, should not be .....

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f the commercial business relationship as agreed and undertaken are not to be rewritten or obliterated. Transfer pricing is a mechanism to undo an attempt to shift profits and correct any under or over payment in a controlled transaction by ascertaining the fair market price. This is done by computing the arm's length price. The purpose is to ascertain whether the transfer price is the same price which would have been agreed and paid for by unrelated enterprises transacting with each other, .....

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nctions being performed by the AE to whom payment is made for the services rendered. These aspects have been elucidated in detail in Sony India Ltd. (supra) by referring to the OECD Guidelines as well as United Nations Practical Manual of Transfer Pricing for Developing Countries. 21. Appropriate in this regard would be reference also to Rules 10B and 10C of the Income Tax Rules, 1962. Rule 10B (2) reads:- "10B. xxx (2) For the purposes of sub-rule (1), the comparability of an international .....

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ch lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retai .....

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ccurate adjustments can be made to eliminate the material effects of such differences.‖ Similarly, Rule 10C (1) reads:- ―10C. (1) For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction or specified domestic transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction or the .....

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e availability, coverage and reliability of data necessary for application of the method; (d) the degree of comparability existing between the international transaction or the specified domestic transaction and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction or the specified domestic transaction and the comparabl .....

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ctive parties to the transactions operate, including the geographical location and the size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition, are all material and relevant aspects. If we keep the aforesaid aspects in mind, it would be delusive not to accept and agree that as per the prevalent practice, subsidiary AEs are often incorporated to carry on distribution and marking function. This .....

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hibit a legitimate transaction. They permit transfer pricing adjustment so as to bring to tax what would have been paid for the transaction in the same or similar comparable circumstances by an independent third party. 23. This ratio and rationale, when applied to the facts of the present case, would mean that the transfer pricing determination would decide what an independent distributor and marketer, on the same contractual terms and having the same relationship, would have earned/paid as inte .....

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transaction. The position would have been different, if the two exceptions carved out in the case of EKL Appliances (supra) were applicable. 24. This is clear and lucid when we examine the methodology prescribed in Rule 10B (1) (a), which prescribes the manner of computing arm's length price under CUP method. Rule 10B (1) (a) reads:- ―10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction 55a[or a specified do .....

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on and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction or the specified domestic transaction xxx " 25. The comparison, therefore, has to be with comparables and not with what options or choi .....

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was to meet the working capital requirements of the subsidiary AE. He noted that when independent enterprises transact with each other, their business relations are determined by the market forces operating, i.e. what is the amount of interest that would have been earned had such an advance been given to an unrelated party placed in a similar position as that of the subsidiary AE. The TPO had asked for the audited financial accounts of the subsidiary. Credit rating would be relevant. He accepted .....

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of interest. 27. Several aspects enunciated above, reflect the correct legal position. We, however, express our inability to accept that commercial expediency and related benefits have no connection or relationship with the rate of interest. In terms of Clause (c) and (d) to Rule 10B (2), contractual relations or terms, and other material facts should be recognized. Having said so, we do accept the force of the alternative argument advanced that this fact could be of marginal significance and ef .....

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eptable and illogical as the loan to the subsidiary AE in the instant case is not granted in India and is not to be repaid in Indian Rupee. It is not a comparable transaction. The finding of the TPO that for this reason the interest rate should be computed at 14% per annum i.e. the average yield on unrated bonds for Financial Years (FY, for short) 2006-07, has to be rejected. 29. The TPO has referred to the decision of the Tribunal in the case of Perot Systems TSI (India) Limited versus DCIT and .....

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Circular dated 1st July, 2006 and 2nd July, 2007, fixing a ceiling on the interest rate on export credit at LIBOR plus 100 basis points etc. The reasoning given is correct and befitting. These were special schemes floated by the Reserve Bank of India for encouraging and facilitating exports with the said object and purpose. Export credit interest was available only for limited number of days and for specific purposes. The rates fixed did not reflect comparable market rates. 31. On the question o .....

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is points over LIBOR for the FY 2006-07. TPO held that in view of the financial health of the subsidiary AE, interest rate could be taken as the average of six months LIBOR plus 400 basis points. On the question of transaction cost, it was stated that it was mandatory for the bank to insist that the borrower must book forward contracts to hedge their position. The TPO referred to the premium payable for undertaking the said hedging transactions and added a cost of 3% per annum as premium, which .....

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st, we do not appreciate the reasoning given by the TPO and find it difficult to accept. The transaction or hedging cost is borne and paid by the borrower. These are undertaken when they take loans in US Dollars or other foreign currencies because the borrower wants to cover any loss on account of the depreciation of the Indian Rupee vis- a- vis the foreign currency. The assessee in the present case is not the borrower, but the lender. Transaction cost is not, therefore, applicable in the case i .....

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not accepted as loan was given out of the shareholder funds, which flowed from one set of shareholders to another set of shareholders. The security aspect it was held was embedded by default in the transaction. Thus, there was no requirement to make further addition on account of security. 34. In the present case, the loan was granted in the year 2002-2003 and not during the period relevant to the assessment year in question. The agreements in respect of loan was entered into on 13th April, 200 .....

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ction under consideration. It claimed that the LIBOR rates in the year 2002 varied between 1.447 % to 3.006 % and in the year 2003 between 1.201% to 1.487%. Rates in the year 2004 were again marginal, with the highest at 3.100% and the lowest at 1.340%. The LIBOR rate of 5.224% quoted in the TPO's order, it is pointed out, was the rate received on the investment made during the assessment year in question by the assessed. Thus, it was argued that the present case is of a long-term loan grant .....

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rior to the financial year, if such data reveals facts which would have influenced determination of transfer price in relation to the transaction being compared. The transaction in question was entered into in the year 2002-03 when the loans were granted to the AE. This was the financial year of the international transaction. Payment of interest is also an international transaction but would have reference to the year in which the loan was granted in case of a long term loan. However, in such si .....

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n the issue or question of ―thin capitalization‖ which does not arise for consideration in the present case. 37. We observe that whatever the Revenue argues and submits in the case of outbound loans or for that matter what we have observed would be equally applicable to inbound loans given to Indian subsidiaries of foreign AEs. The parameters cannot be different for outbound and inbound loans. A similar reasoning applies to both inbound and outbound loans. Revenue has erroneously arg .....

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nts on account of low credit rating of the subsidiary AE and the cost of transaction. 39. The question whether the interest rate prevailing in India should be applied, for the lender was an Indian company/assessee, or the lending rate prevalent in the United States should be applied, for the borrower was a resident and an assessee of the said country, in our considered opinion, must be answered by adopting and applying a commonsensical and pragmatic reasoning. We have no hesitation in holding th .....

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nt and several other parameters. Interest rates payable on currency specific loans/ deposits are significantly universal and globally applicable. The currency in which the loan is to be re-paid normally determines the rate of return on the money lent, i.e. the rate of interest. Klaus Vogel on Double Taxation Conventions (Third Edition) under Article 11 in paragraph 115 states as under:- ―The existing differences in the levels of interest rates do not depend on any place but rather on the c .....

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foreign currency is normally no use, because, for instance, a US $ loan advanced by a US lender is to him a debt-claim in national currency whereas to a German borrower it is a foreign currency debt (the situation being different, however, when an agreement in a third currency is involved). Moreover, a difference in interest levels frequently reflects no more than different expectations in regard to rates of exchange, rates of inflation and other aspects. Hence, the choice of one particular curr .....

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e fixing), the appropriate course would be to attribute it to the economically more powerful party. But, exactly where there is no ‗special relationship', this will frequently not be possible in dealings with such party. Consequently, it will normally not be possible to review and adjust the interest rate to the extent that such rate depends on the currency involved. Moreover, it is questionable whether such an adjustment could be based on Art. 11 (6). For Art. 11(6), at least its word .....

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arket, etc., of the foreign corporate group member) the borrowing company might not have completely refrained from making investment for which it borrowed the money.‖ 40. The aforesaid methodology recommended by Klaus Vogel appeals to us and appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applic .....

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d in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply. 41. Counsel for the Revenue had made reference to Chapter 10 of the U.N. Transfer Pricing Manual, relevant portion of which reads:- ―10.4.10. Financial Transactions 10.4.10.1. Intercompany loans and guarantees are becoming common international transactions between related parties due to the management of cross-border funding wi .....

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orrower; Ø The identification of comparable third party loan agreements: and Ø Suitable adjustments to enhance comparability. 10.4.10.2. The Indian transfer pricing administration has come across cases of outbound loan transactions where the Indian parent has advanced to its associated entities (AE) in a foreign jurisdiction either interest free loans or loans at LIBOR (London Interbank Offered Rate) or EURIBOR (Euro Interbank Offered Rate). The main issue before the transfer prici .....

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ancial transactions is credit guarantee fees. With the increase in outbound investments, the Indian transfer pricing administration has come across cases of corporate guarantees extended by Indian parents to its associated entities abroad, where the Indian parent as guarantor agrees to pay the entire amount due on a loan instrument on default by the borrower. The guarantee helps an associated entity of the Indian parent to secure a loan from the bank. The Indian transfer pricing administration g .....

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and the rate of interest specific to a credit rating of Indian bonds is also considered for determination of the arm's length price of such guarantees. 10.4.10.4. However, the Indian transfer pricing administration is facing a challenge due to non-availability of specialized databases and of comparable transfer prices for cases of complex inter- company loans as well as mergers and acquisitions that involve complex inter- company loan instruments as well as an implicit element of guarantee f .....

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he business relationship and the functions performed by the subsidiary AE for the parent company. In the present case, we are not concerned with paragraph 10.4.10.3 of the United Nations Transfer Pricing Manual. However, we are unable to agree with the position set out and asserted in paragraph 10.4.10.2 of the Manual. The reasoning given therein is contrary to the accepted international tax jurisprudence and the rules adopted and applied. There is no justification or a cogent reason for applyin .....

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ble by the Subcommittee on Transfer Pricing: Practical Aspects 10.1.1. In the first nine chapters of this Manual, the Subcommittee has sought to provide practical guidance on the application of transfer pricing rules based on Article 9(1) of the UN Model Tax Convention and the arm's length principle embodied in that Article. With regard to chapters one through nine, the Subcommittee has discussed and debated the merits of the guidance that is provided and, while there may be some disagreemen .....

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