The Income Tax department conducted a survey on the British Broadcasting Corporation (BBC) premises in Delhi for alleged non-compliance with the transfer pricing rules and its vast diversion of profits.
A tax official clarified that the exercise was a survey and not a search operation. He added that such surveys are part of routine exercise and different from a search or raid.
The exercise under which one party transfers goods or services to another party for a price, is called “transfer price”.
Deliberate non compliance with regards to transfer pricing could mean that the parent company or a specific subsidiary has produced insufficient taxable income or excessive loss on a transaction. For instance, profits accruing to the parent can be increased by setting high transfer prices to siphon profits from subsidiaries domiciled in other tax countries which typically have higher taxes.
How can transfer pricing be violated?
In case a company purchases goods or services for a certain amount and then sells it to its associated company for a higher sum, which in turn once again sells the same for an even higher amount. Now if the first company sold the goods or service directly to the third company, it would have made much higher profit. However by routing it through another company, it has restricted its own profit to a lower amount, allowing the middle company to appropriate the balance.
Highly placed sources said that the BBC has been indulging in persistent non-compliance for years. Several notices have already been issued to the news organisation.
However, the BBC has been continuously defiant and non-compliant and has significantly diverted their profits, the sources said, adding that the key focus of these surveys is to look into manipulation of prices for unauthorised benefits, including tax advantages. In case of the BBC’s, persistent non-compliance of the norms has made the broadcaster a “repeat offender.”
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