Infrastructure projects in India are typically structured through Special Purpose Vehicles (SPVs) that serve as the primary vehicle for project development, financing, and operations. These SPVs frequently enter into related-party arrangements with sponsors, contractors, operators, and other group entities. 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 infrastructure project SPV related-party arrangements.
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 infrastructure SPV and related entities become associated enterprises (AEs) under Section 162 when:
- One holds, directly or indirectly, shares carrying not less than 26% of the voting power in the other
- One participates in the management or control or capital of the other
- One has the power to appoint more than half of the board of directors
Section 163 — International Transaction
If the infrastructure SPV or the related entity is non-resident, the transaction may constitute an international transaction.
Section 164 — Specified Domestic Transaction
If both entities are resident in India and the aggregate value of related-party transactions exceeds ₹20 crore in a tax year, the transactions may constitute specified domestic transactions.
Common Infrastructure SPV Related-Party Arrangements
1. Project Development and Engineering Services
- Feasibility studies and project reports
- Engineering and design services
- Project management services
- Construction supervision
2. Financing Arrangements
- Intra-group loans and guarantees
- Interest payments
- Commitment fees
- Security arrangements
3. Operations and Maintenance (O&M) Services
- O&M agreements with group entities
- Technical services
- Maintenance contracts
- Facility management
4. Equipment and Material Supply
- Supply of machinery and equipment
- Supply of materials and consumables
- Lease arrangements
5. Shared Services
- Shared administrative services
- Shared IT services
- Shared HR services
Determination of Arm's Length Price
Applicable Methods
Section 165(1) prescribes six methods. The most appropriate method depends on the nature of the transaction:
| Transaction Type | Common Methods |
|---|---|
| Project Development Services | TNMM, Cost Plus |
| Financing (Loans) | CUP (interest rates) |
| O&M Services | TNMM, Cost Plus |
| Equipment Supply | CUP, Resale Price |
| Shared Services | Cost Plus, TNMM |
Transfer Pricing Scrutiny
Infrastructure SPVs face significant transfer pricing scrutiny due to:
- Large transaction values
- Long-term project durations
- Complex related-party structures
- Regulatory and concession agreements
Functional Analysis
- Functions: Project development, financing, construction, operations, maintenance
- Assets: Project assets, intellectual property, brand, reputation
- Risks: Construction risk, operational risk, financing risk, regulatory risk
Key Considerations for Infrastructure SPVs
1. Concession Agreements
Concession agreements with government authorities often specify:
- Tariff structures
- Performance standards
- Revenue sharing arrangements
- These may affect the transfer pricing analysis
2. Project Financing
Infrastructure projects are typically highly leveraged:
- Loan covenants
- Guarantee arrangements
- Interest rates
- These must be at arm's length
3. Long-Term Contracts
Infrastructure SPVs often have long-term contracts:
- Power Purchase Agreements (PPAs)
- Offtake agreements
- Concession agreements
- These affect the transfer pricing analysis
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 Infrastructure SPVs
1. Regulatory Framework
Infrastructure SPVs are subject to various regulatory requirements:
- Sector-specific regulators (electricity, telecom, ports, etc.)
- Concession agreement compliance
- Tariff regulations
2. Project Lifecycle
Infrastructure projects have distinct lifecycle stages:
- Development phase
- Construction phase
- Operations phase
- Each phase has different transfer pricing considerations
3. Government Contracts
Contracts with government entities may affect transfer pricing:
- Tariff determination
- Revenue sharing
- Performance guarantees
Practical Compliance
1. Identify Related-Party Transactions
- Identify all transactions between the SPV and related entities
- 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 infrastructure project SPVs. Our direct tax experts help infrastructure SPVs 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 infrastructure project SPVs 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 infrastructure transfer pricing matters.