Transfer pricing in India: Issues and Challenges

What is transfer pricing? 

Transfer pricing is the price paid by the foreign parent company or foreign entity to the local

 When it was introduced in India? 

 Transfer pricing introduced in 2001 in India

 What is the current mark up to the local companies by their parent companies like Google, IBM, and Microsoft? 

14-16%

 

What is Arms length pricing? 

This is international standard pricing method in which the price of the parent company to their local parts compared with independent entities. 

 

What are major areas of transfer pricing? 

Advertising, marketing, and promotion expenses(AMP) 

Some of the AMP expenses are

A. Increasing the brand value of MNC by its subsidary in India. For example, expenses incurred for increasing brand value of Unilever by Hindustan Unilever limited. 

B. Creation of supply chain

Example: Cost of developing distribution network in India by Vodafone. 

C. Conducting market research in India

Illustration: Coca-Cola cola marke research on Diet coke in India. 

Issues

 

. 

1. These are not included in the international transactions. 

Intra group transactions
Centralized procurement. 
Location savings

Marketing strategies of Indian companies in Zimbabwe

Zimbabwe an African country stands at 122 rank for export and 120th largest importer in the world
1. Medicaments:

It includes steroids, antibiotics, aldehydes, phenolics and heavy metal salts.

The drugs in zimbabwe are sold on higher prices through the country has adopted drug price control in 2004.
The overall pharma market is dominated by Indian companies.

80% of the drugs in Zimbabwe comes from India.

The indian company Shreya invested in Zimbabwe's CAPA.

Ranbaxy and ICPA have too entered Zimbabwe market. Ranbaxy have agrrements with local companies to produce ARV's.

2. T -shirts

3.  frozen meats

4. Construction : Indian public sector companies like Indian Railway Construction Company (IRCON), Rail India Technical & Economic Services (RITES), Water and Power Consultancy Services (WAPCOS) and Telecommunications India Ltd. (TCIL) had a successful history of engagement with Zimbabwe.

5. PIrrigation: Kirloskar and jain irrigation are the two major suppliers to Zimbabwe.

6. Tyre: Indian company Apollo invested in Dunlop Zimbabwe for producing and marketing tyres.

7. Water supply: Technofab Delhi has got contract for water services in Harare.

8. Ash plant; Indian company Indure got the contract for ash treatment facility.

9. Varun beverages of India will be setting up bottling plant in Zimbabwe.