Transfer Pricing for Manufacturing & Engineering
We provide transfer pricing consulting for manufacturing companies, engineering businesses, contract manufacturers and industrial groups operating through related entities in India and overseas.
India as a global manufacturing base
Manufacturing transfer pricing in India typically benchmarks contract or toll manufacturing margins under TNMM or CPM, tests raw-material import pricing under CUP, and evaluates technical know-how royalty rates against comparable licensing data.
Transfer pricing for manufacturing companies in India often involves several connected transactions within one production chain. An Indian entity may manufacture for a foreign principal, import specialised raw materials, export finished goods, licence technology, receive engineering support and use machinery owned by another group company.
These arrangements can create significant adjustment exposure because the underlying transaction values are often high. The pricing model must match the entity's actual production complexity, ownership of inventory, control over quality and capacity risks, and responsibility for product development and customer relationships.
Typical manufacturing structure
An Indian plant manufactures on a contract or toll basis for a group principal, pays a technical know-how royalty and imports raw materials, components, machinery or tooling from related overseas entities.
A defensible position begins with a detailed functional analysis and an industry-specific transfer pricing benchmarking study .
Where transfer pricing applies in manufacturing
Manufacturing groups commonly have controlled transactions covering production, intellectual property, equipment, inputs and technical support.
Contract and Toll Manufacturing
Contract manufacturing transfer pricing in India usually involves an Indian entity producing goods for a group principal on a cost-plus basis. Toll manufacturing may differ where the principal owns the raw materials and the Indian entity primarily provides conversion capacity and production services.
Technical Know-How Royalty
An Indian manufacturer may pay licence fees for production methods, patents, designs, drawings, formulas or technical assistance. Technical know-how royalty in India should reflect the rights granted, period, territory, exclusivity and measurable commercial benefit received.
Raw Material and Component Imports
Inputs purchased from overseas associated enterprises may be tested against internal purchases from independent suppliers or external commodity and market prices. Product quality, volume, delivery terms, geography and market timing can materially affect comparability.
Export of Finished Goods
Finished products may be sold to foreign group distributors, regional hubs or end customers through related entities. The pricing should reflect production functions, inventory exposure, market risks, warranty responsibilities and the contribution of the overseas distributor.
Machinery and Tooling Transfers
Group companies may sell, lease or allocate specialised machinery, dies, moulds and tooling. The analysis should consider age, condition, remaining useful life, production capacity, ownership and whether the equipment is dedicated to a particular customer or product.
Engineering Design Services
Cross-border engineering, product design, testing and technical support services may be charged on a cost-plus basis. The return should reflect technical capability, decision-making authority and whether the Indian team performs routine support or contributes to valuable know-how.
How manufacturing transactions are benchmarked
The appropriate transfer pricing method depends on the transaction, functional profile and availability of reliable comparable information.
TNMM and CPM
TNMM or the Cost Plus Method may be used for contract and toll manufacturing arrangements. Benchmarking should consider production complexity, owned assets, capacity utilisation, product mix, extraordinary costs and controlled risks.
CUP Method
CUP may be suitable for raw-material purchases, component imports, finished-product exports and technical know-how royalties where reliable internal or external uncontrolled prices are available.
Profit Split Method
PSM may be relevant where manufacturing and R&D operations are highly integrated and multiple group entities contribute unique technology, process knowledge or other valuable intangibles.
Safe Harbour Review
Safe Harbour is not available for every manufacturing activity. It should be considered only where the specific transaction falls within an eligible prescribed category and the financial outcome is suitable.
Learn more about our Safe Harbour advisory services .
Margins and royalties that reflect real functions
We begin by mapping the complete manufacturing value chain, including sourcing, production planning, quality control, inventory ownership, capacity decisions, product development, logistics, warranties and customer-facing responsibilities.
We then characterise the Indian entity as a toll manufacturer, contract manufacturer, licensed manufacturer or entrepreneurial producer based on its actual conduct. This classification guides tested-party selection, method choice and the comparable-company search.
Royalty payments and import prices are tested separately, but we review the full arrangement together to prevent overlapping charges and ensure that the Indian company's overall return remains commercially consistent.
Manufacturing Benchmarking
Comparable-company margin analysis tailored to the relevant industrial sub-sector and manufacturing model.
Royalty Defensibility
Technical know-how and technology licence analysis using reliable comparable agreements and transaction-specific factors.
Import Pricing Analysis
CUP-based review of raw materials, components and equipment with appropriate product and market adjustments.
Litigation Readiness
Functional evidence, segmented accounts and technical submissions prepared to support the position during scrutiny.
Our manufacturing transfer pricing services
We support manufacturers and engineering groups with planning, benchmarking, compliance and dispute prevention.
Benchmarking Study
Sub-sector-specific comparable manufacturer analysis, margin testing, working-capital review and support for appropriate economic adjustments.
TP Documentation and Form 3CEB
Annual Local File preparation and accountant-report coordination for manufacturing, imports, exports, royalties, services and equipment transactions.
Safe Harbour Advisory
Review of transaction eligibility, prescribed conditions, expected margin impact and supporting documentation before an election is considered.
Audit and Litigation Support
Assistance with manufacturing-margin, royalty and import-pricing disputes before the TPO, DRP, CIT(A) and ITAT.
Manufacturing transfer pricing questions
Manufacturing for or with a group company?
Get your manufacturing margin, import pricing and royalty structure reviewed by our transfer pricing team.
Related: Transfer Pricing Benchmarking · Safe Harbour Advisory