Economic Principles are relevant while performing Transfer Pricing Analysis of Corporate Guarantee Transactions

Macrotech Developers Limited (Known by the brand name ‘Lodha’ and hereafter referred to as the ‘taxpayer’) is an Indian company engaged in the business of building and developing residential and commercial properties.

During the years under consideration (AY 2017-18 and AY 2018-19), the taxpayer had entered into international transactions with its Associated Enterprise (AE) based in Mauritius. During AY 2013-14, the AE raised funds by issuing bonds for its business purpose. The taxpayer along with a few other group companies provided corporate guarantees to the AE towards issuing such bonds. However, no guarantee commission was charged from the AE in lieu of such a guarantee. The Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) for the determination of Arm’s Length Price (ALP).

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