—Guide
Transfer Pricing for Hyderabad GCCs and Pharma Subsidiaries: Common Issues
The transfer pricing issues most common for Hyderabad's global capability centres and pharma and life sciences subsidiaries, and how to address them.
Two of Telangana's largest sectors — global capability centres and pharma and life sciences — are heavily affected by transfer pricing. Both involve large volumes of transactions with foreign group companies, and both have particular issues that come up repeatedly. This guide covers them.
Global Capability Centres
Most GCCs provide services to their parent on a cost-plus basis. Common issues:
- The mark-up: whether it reflects the GCC's actual functions, especially as it takes on higher-value work like product development or analytics.
- The cost base: what's included — for example, stock-based compensation for employees, pass-through costs, and reimbursements.
- Characterisation: whether the GCC is a routine service provider, or develops valuable intangibles that should earn more.
- Comparables: whether the benchmarking companies match the GCC's work.
Safe harbour rules for eligible IT and ITeS services can provide certainty, and many large GCCs have used Advance Pricing Agreements.
Pharma and Life Sciences
- Contract research and development: the mark-up for R&D services, and whether the Indian entity owns or shares in the resulting intangibles.
- Contract manufacturing: pricing of manufacturing for group companies, and treatment of capacity utilisation.
- Sales to overseas group distributors: pricing of finished products for regulated markets.
- Royalties and technology licences.
- Recharges for regulatory filings and product registrations.
Assessment and Appeals
Transfer pricing adjustments are examined by specialist officers, with objections before the Dispute Resolution Panel or appeals, and further appeals to the Income Tax Appellate Tribunal, which has a Hyderabad bench.
A Checklist
- Review whether the GCC's functions still match its cost-plus remuneration.
- Define the cost base clearly in intercompany agreements.
- For pharma, document ownership of intangibles from R&D.
- Consider safe harbours or an APA for recurring transactions.
- Keep documentation current each year.
Getting Help
Think Filing supports Hyderabad GCCs and pharma subsidiaries with transfer pricing documentation, APAs and disputes.