Motive to Avoid and Transfer Pricing

Transfer pricing and arm’s length pricing have become increasingly important subjects over the past few years, with the growing importance of cross-border transactions between companies under the same umbrella organisation, or connected in other ways. Several questions have arisen – the definition of ‘associated enterprises’, the appropriate method of computing transfer pricing etc.

One of these questions is whether motive to avoid is a necessary condition for invoking arm’s length provisions. The Bangalore ITAT has considered these questions in detail in Philips Software Centre Pvt. Ltd. v. ACIT, a decision given on September 26, 2008, in ITA No. 218 (BNG)/08. A brief analysis of this judgment is available here. A text of the 172 page order is available here.