Determinants of Transfer Pricing Disputes in India

Abstract

This study explores the financial determinants associated with transfer pricing (TP) disputes in India, focusing exclusively on cases that have entered litigation. Utilizing case law data from Taxmann and financial information from the Prowess database, the research examines how specific financial metrics relate to disputed TP assessments. Given the non-normality of financial data (confirmed by Shapiro–Wilk tests), Spearman’s rank-order correlation was employed to uncover key associations. The analysis reveals strong relationships between related party transactions (RPTs), sales, and foreign exchange earnings, suggesting these areas often trigger disputes. Conversely, weak correlations between royalties and operational metrics point to potential issues in documentation or misalignment with the arm’s length principle. As the findings are based on litigated cases, they highlight characteristics commonly present in contentious scenarios, providing targeted insights for risk assessment and compliance. The study contributes to both academic discourse and policy formulation by identifying dispute-prone financial indicators in the Indian TP landscape.