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COVID-19 impact: Transfer pricing issues may crop up at MNCs

COVID-19 impact: Transfer pricing issues may crop up at MNCs

Indian entities of many multinationals, which receive a fixed margin or a mark-up from their parents, fear they could face transfer-pricing issues due to Covid-19. This is because the MNCs are renegotiating and slashing these fixed mark-ups, which the tax authorities may see as an anomaly and question. 

Transfer pricing is essentially the price paid by the parent company or its foreign arm to a local subsidiary for transactions among them. In most cases, the local entity charges a mark-up at arm’s length, or at a price as per industry average. 

Industry trackers said many multinationals facing margin pressures due to the coronavirus outbreak were renegotiating these mark-ups. This would mean the margins for Indian entities of the MNCs could come down. The tax authorities, experts said, might not agree with the markdowns. 

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