Intra-group services
Circular SE-50/PJ/2013 instructs tax auditors to check that the service has been provided and given economic benefit to the recipient. Shareholder services, duplicate services, incidental benefits, passive association or on-call services may not be charged to related enterprises. The calculation of the arm’s length charge must be clearly shown.
Financial services
In examining interest payments to third parties Circular SE-50/PJ/2013 indicates that tax auditors should look at the interest coverage ratio, i.e. the earnings before interest and tax divided by the interest expense.
Transfer pricing application process
According to Circular SE-50/PJ/2013 in selecting the most suitable transfer pricing method the tax auditor should consider the strengths and weaknesses of the method; its compatibility based on the analysis of functions, assets and risks of the taxpayer; the availability of reliable information and comparability factors including the possibility of adjustments to comparables.
Applicable Methods- Transactional net margin method
According to Circular SE-50/PJ/2013 the profit level indicator used should be the most suitable indicator based on the facts and conditions and may include the commonly used PLIs such as net margin, net mark-up or return on assets.
Audits process
Circular SE-50/PJ/2013 indicates that tax auditors should look at functions, assets and risks so as to determine the characteristics of the taxpayer’s business, and check the manufacturing and marketing intangibles.
