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October 2022

Transfer Pricing – Benchmarking of Overdue Receivables and Payables – Complexities and Caution

By Bhavesh Dedhia | Gunjan Shah
Chartered Accountants
Reading Time 22 mins
Receivables and payables are inevitable parts of any business transaction. While group entities generally focus on the main transaction of import or export of goods or services, it is extremely important to keep track of the settlements of consequent receivables and payables. The delay in settlement of transactions could subject the MNE Group to onerous compliances, additional costs and penal consequences if there is a slippage in the appropriate disclosures.

Owing to rising disputes, while the CBDT brought the specific amendment to clarify this aspect with retrospective effect in Finance Act 2012, it is important first to understand the history and logic behind this controversial issue:

BACKGROUND OF THE ISSUE

Before the Finance Act 2012, a significant controversy erupted due to a lack of clarity as to whether the transaction of overdue receivables/ payables should be considered as a separate international transaction. The Indian revenue authorities astutely noticed instances of funding overseas group entities by delaying the settlement of the inter-company transaction. However, as there was no clear guidance to consider overdue receivables/payables as an international transaction, the legislature came up with the below-mentioned clarification vide the Finance Act 2012.

The definition of ‘international transaction’ u/s 92B of the Incom
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