E-commerce groups frequently establish captive fulfilment and logistics centres in India to support their operations. These centres provide warehousing, order fulfilment, last-mile delivery, and other logistics services to related parties. Under the Direct Tax Code (DTC) 2025, these transactions are subject to transfer pricing rules and must be priced at arm's length. This guide analyses the transfer pricing implications for e-commerce fulfilment and logistics captives.
The Transfer Pricing Framework
Section 161 — The Arm's Length Principle
Section 161(1) requires that "Any income arising from an international transaction or a specified domestic transaction shall be determined having regard to the arm's length price". Section 161(2) extends this to "Any allowance for any expense or interest".
Section 162 — Associated Enterprise
The captive fulfilment centre and the overseas parent become associated enterprises (AEs) under Section 162 when:
- The parent holds, directly or indirectly, shares carrying not less than 26% of the voting power in the captive centre
- The parent participates in the management or control or capital of the captive centre
- The parent has the power to appoint more than half of the board of directors
Section 163 — International Transaction
The provision of fulfilment and logistics services by the captive centre to its overseas parent or group companies constitutes an international transaction under Section 163.
Common E-commerce Fulfilment and Logistics Transactions
1. Warehousing and Storage Services
- Storage of inventory
- Inventory management
- Warehouse operations
- Returns processing
2. Order Fulfilment Services
- Order processing
- Pick and pack operations
- Labelling and packaging
- Quality control
3. Last-Mile Delivery Services
- Delivery to customers
- Courier services
- Logistics management
- Route optimisation
4. Technology Services
- Logistics technology platforms
- Tracking and tracing systems
- Warehouse management systems
- Analytics and reporting
5. Shared Services
- Shared procurement
- Shared IT services
- Shared HR services
- Shared finance and accounting
Determination of Arm's Length Price
Applicable Methods
Section 165(1) prescribes six methods. The most appropriate method depends on the nature of the service:
| Transaction Type | Common Methods |
|---|---|
| Warehousing and Storage | TNMM, Cost Plus |
| Order Fulfilment | TNMM, Cost Plus |
| Last-Mile Delivery | TNMM, Cost Plus |
| Technology Services | TNMM, Cost Plus |
| Shared Services | Cost Plus, TNMM |
Functional Analysis
- Functions: Warehousing, order processing, delivery, technology support, administration
- Assets: Warehouses, equipment, technology platforms, brand, reputation
- Risks: Inventory risk, operational risk, key person risk, regulatory risk
Key Considerations for E-commerce Logistics Captives
1. Service Intensity
E-commerce logistics is service-intensive, requiring:
- Significant labour force
- Technology infrastructure
- Quality control systems
2. Volume and Seasonality
E-commerce volumes are often seasonal:
- Peak seasons (festivals, sales events)
- Off-peak periods
- Capacity planning
3. Technology Integration
Modern e-commerce logistics requires:
- Real-time tracking
- Warehouse management systems
- Integration with e-commerce platforms
Documentation Requirements
Section 171 — Maintenance of Information and Documents
Rule 84(1) prescribes the information and documents to be maintained:
- Description of the ownership structure
- Profile of the multinational group
- Description of the business and industry
- Nature and terms of the international transaction
- Functional analysis
- Method selection and application
Rule 84(2) — Threshold
If the aggregate value of international transactions does not exceed ₹1 crore, the documentation requirements shall not apply.
Section 172 — Report from an Accountant
Every person who has entered into an international transaction or specified domestic transaction shall obtain a report from an accountant and furnish it on or before the specified date.
Special Considerations for E-commerce Logistics Captives
1. Service Level Agreements
SLAs with the parent company must:
- Specify service levels and performance metrics
- Include penalties for non-performance
- Be at arm's length
2. Cost Allocation
The captive centre must:
- Allocate costs appropriately
- Ensure cost allocation is at arm's length
- Document the allocation methodology
3. Benchmarking
Comparable independent logistics service providers:
- Identify comparable companies
- Consider factors such as service mix, scale, and location
- Make adjustments for differences
Practical Compliance
1. Identify Transactions
- Identify all transactions between the captive centre and related parties
- Determine the nature and value of each transaction
2. Conduct Transfer Pricing Study
- Conduct a functional analysis
- Identify comparables
- Determine the arm's length price
- Document the analysis
3. Maintain Documentation
- Maintain contemporaneous documentation
- Ensure documentation is complete and accurate
- Retain documentation for nine years
4. File Report
- Obtain a report from an accountant
- File the report on or before the specified date
5. Monitor Compliance
- Regularly monitor compliance with transfer pricing rules
- Update documentation as necessary
Consequences of Non-Compliance
Transfer Pricing Adjustment
If the transfer price is determined not to be at arm's length:
- The income may be adjusted
- Interest and penalty may be levied
Penalties
- Section 442: Penalty of 2% of the value of each international transaction
- Section 457: Penalty of 2% for failure to furnish information
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on transfer pricing for e-commerce fulfilment and logistics captives. Our direct tax experts help e-commerce groups understand their obligations, prepare documentation, and navigate the regulatory framework. We assist in TP study preparation, report filing, and representation before income-tax authorities.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on transfer pricing or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex transfer pricing framework for e-commerce fulfilment and logistics captives requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- TP Assessment: Evaluation of transfer pricing obligations
- Documentation: Assistance with TP study and documentation
- Benchmarking: Guidance on comparable selection and analysis
- Representation: Representation before Transfer Pricing Officers
Contact us for expert legal guidance on your e-commerce logistics transfer pricing matters.