Transfer Pricing & Authority for Advance Rulings MCQs with Explanations
Transfer Pricing refers to the pricing of transactions between related companies operating in different countries. The Authority for Advance Ruling helps taxpayers obtain tax clarity before transactions. This topic is important in international taxation and Indian Economy.
Consider the following statements regarding the transfer pricing regulations:
Transfer Pricing (TP) is an accounting practice that enables subsidiaries of the same company to transact with each other.
Transfer pricing in India is governed under the companies act, 2013.
Which of the statements given above is/are correct?
Correct Answer:
(A) 1 only
Transfer pricing (TP) refers to the pricing of goods, services, or intangible assets exchanged between related businesses, subsidiaries, or divisions of the same multinational company. It is an accounting and taxation method applied to both domestic and cross-border transactions.
Transfer Pricing in India is dealt in Section 92 to 92F of Income Tax Act, 1961. As per Section 92 of the Act, any income arising from an international transaction or specified domestic transaction shall be computed having regard to the arm's length price.
Ques: 2
Consider the following statements regarding Authority for Advance Rulings (AAR):
AAR is a judicial tribunal.
It is for both direct and indirect taxes.
Which of the statements given above is/are correct?
Correct Answer:
(B) 2 only
Authority for Advance Rulings (AAR) is distinct quasi-judicial tribunal which delivers advance rulings in India regarding tax applicable.
It started initially for foreign investments later on both residents and non-residents could seek advance ruling where substantial tax impact involved.
It is for both direct and indirect taxes. Central Board of Direct Taxes (CBDT), the apex organisation of the direct tax administration, issues circulars for advance ruling on direct taxes.
Ques: 3
Consider the following statements regarding the Advance Pricing Agreement (APA):
It is an agreement between a taxpayer and tax authority.
APA helps determine arm's length price (ALP) of international transactions.
Which of the statements given above is/are correct?
Correct Answer:
(C) Both 1 and 2
Advance Pricing Agreements (APAs) is an agreement between a taxpayer and tax authority.
APAs endeavors to provide certainty to taxpayers in domain of transfer pricing by specifying methods of pricing.
APA helps determine arm's length price (ALP) of international transactions in advance for a maximum of five future years.
Further, taxpayer has option to roll back APA for four preceding years, as a result of which, tax certainty is provided for nine years.
Ques: 4
Which of the following international transactions can be done by transfer pricing rules?
Correct Answer:
(D)
All of the above
International Transactions Done by Transfer Pricing Rules
Fees for technical services
Management fees
Fees for royalty
Corporate guarantee fees
Loan paid or received
Finished goods sales
Purchase of raw materials
Purchasing of fixed assets
Sale or purchase of machinery, intangibles, etc
Reimbursement of paid or received expenses
Services such as IT, support services, etc
Software development services
Ques: 5
Consider the following statements:
The Transfer price for a product is mostly lower than the market price of the product.
It prevents arbitrary charging of prices.
Which of the statements given above is/are correct?
Correct Answer:
(C) Both 1 and 2
Transfer price for a product is mostly lower than the market price of the product, therefore it results in cost savings for various departments.
It inculcates transparent pricing mechanisms and prevents arbitrary charging of prices.
It lowers the duty costs by shipping goods into high-tariff countries at minimal transfer prices so that duty base and duty are low.