ASSIGNMENT NUMBER 2

B. Com. LL.B (Hons.) (Taxation Law)International Taxation (Hons 6) LLBL486

BATCH 1& 2Marks: 20
Timing: 1 hour
Answer both the questions. Question 2 is on next page

Question 1:What is Tax Information Exchange Agreement ‘TIEA’? (5 Marks)

Answer 1-
The aim of this Agreement is to encourage international cooperation in tax matters through the
exchange of information. The OECD Global Forum Working Group on Successful Knowledge
Sharing was created. The Agreement arose from the work done by the OECD to counter harmful
tax practices. Lack of successful exchange of information is one of the main requirements for
assessing harmful tax practices. The Agreement is a standard for the efficient exchange of
information. The Agreement arose from the work done by the OECD to counter harmful tax
practices. Lack of successful exchange of information is one of the main requirements for
assessing harmful tax practices. The Agreement is a standard for the efficient exchange of
information for the purposes of the OECD initiative on harmful tax practices. This Agreement,
which was published in April2002, is not a binding document, but includes two templates for
bilateral agreements. A significant number of bilateral agreements were based on this
Agreement. The OECD Fiscal Affairs Committee (CFA) approved the Model Protocol to the
Agreement in June 2015. The Model Protocol may be used by jurisdictions if they choose to
expand the scope of their current TIEAs to include the automatic and/or spontaneous exchange
of information.
Question 2: (15 Marks)

Facts
 Madhur Limited (Indian Co.) holds 30% equity shares of Sunny Limited (Foreign Co).
 Madhur Limited sells 120000 units of X product @ Rs. 3000 per unit to Sunny Limited.
 Madhur Limited also sells 1500 units of X product @ Rs 5000 per unit to Poonam
Limited.

Additional Information:
 Sale to Sunny Limited on FOB & sale to Poonam Limited on CIF & cost of Insurance
and Freight is Rs. 300 per unit.
 Since order from Sunny Limited is more in quantity so Madhur Limited provided
discount @ Rs 150 per unit to Sunny Limited.

Calculate Arm’s Length Price.

Answer 2-
Transaction A between Madhur Ltd & Sunny Ltd is controlled transaction 
Transaction B between Madhur Ltd & Poonam Ltd is uncontrolled transaction  
 
Comparable Uncontrolled Price Method: 
Calculation: 
Price charged in uncontrolled transaction  = 5000 
Adjustments-
Add/Less difference between controlled international transaction & uncontrolled transaction 
 Less – Cost of Insurance & Freight = (300)  
Less- Discount (150) (450) Arm’s Length Price 4550    
Seller is at the loss of Rs. 4550-3000 = 1550 in uncontrolled transaction  
Net Loss undertaken in order to save the Tax = 1550*1, 20,000= 18, 60, 00,000