ECONOMICS

Detailed explanation-1: -The basis of transfer pricing is the Arm’s Length Principle, as it is known internationally. This principle states that the price agreed in a transaction between two related parties must be the same as the price agreed in a comparable transaction between two unrelated parties.

Detailed explanation-2: -In India, transfer pricing is regulated by the Income Tax Act 1961 and the rules prescribed thereunder. The Central Board of Direct Taxes (CBDT) is responsible for enforcing India’s transfer pricing regulations.

Detailed explanation-3: -Transfer pricing allows for the establishment of prices for the goods and services exchanged between subsidiaries, affiliates, or commonly controlled companies that are part of the same larger enterprise. Transfer pricing can lead to tax savings for corporations, though tax authorities may contest their claims.