Rule on secondary adjustment notified


The Central Board of Direct Taxes on 15 June notified rule 10CB, to operationalize the provisions of secondary adjustment under section 92CE, which was inserted in the Income Tax Act by the Finance Act, 2017. Secondary adjustment ensures consistency between the arm’s length price (ALP) determined by primary adjustment and the actual profits received by the taxpayer. If the determination of ALP by way of primary adjustment leads to increase in taxable profits, the secondary adjustment seeks to ensure that the adjusted amount is repatriated to the taxpayer, and that such repatriation is subject to appropriate taxation. The mechanics of secondary adjustment are such that if primary adjustment leads to an increase in taxable profits, and the excess profits are not repatriated within the prescribed time, these will be deemed to be an advance on which interest shall accrue until they are repatriated to the taxpayer by its associated enterprise.

The notified rule provides for a time limit of 90 days for repatriation of excess profits to the taxpayer and the rates of interest to be applicable on the excess profit if it is not repatriated within the prescribed time limit. The time period begins only when primary adjustments exceeding ₹10 million (US$156,000) made in respect of financial year 2016-17 onwards attain finality. In a situation where the transfer pricing order has been appealed, the time period will commence from the day the appeal is finalized. Separate interest rates have been provided for international transactions denominated in Indian currency and foreign currency and they are applicable on an annual basis.