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- Cost Allocation or apportionment between Associated Enterprises - Lecture 7 - Transfer Pricing - CA Final International Taxation Elective Paper 6C - CA Arinjay Jain
The cost or expenses allocated or apportioned between Associated enterprises under a mutual agreement or arrangement shall be at arm’s length price.
B Ltd., a foreign company, and an Associated Enterprise of X Ltd. , an Indian company, carries out certain centralized functions like Human Resource, obtaining finance, IT services etc., for several group companies, including X Ltd. and incurs various cost in provision of such services like salaries to its employees, IT cost etc. It proposes to allocate a part of such cost to X Ltd., Allocation of Cost of such centralized functions between X Ltd., Y and Z, shall be made, having regard to the arm’s length price of services obtained by each of these enterprises, using common basis, like time spent by common resource, etc.
Note : -
Any excess amount charged by B Ltd. over and above the fair value of services obtained by X Ltd. would not be allowed as a deduction to X Limited under the Indian Transfer Pricing provisions.
