Definition of International Transaction [Section 92B] :

(1) International Transaction [Section 92B(1)]: It means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises. It shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expenses incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.

(2) Deemed International Transaction [Section 92B(2)]: Where, in respect of a transaction entered into by an enterprise with a person other than an associated enterprise (hereinafter referred to as “other person”),

•  there exists a prior agreement in relation to the relevant transaction between the other person and the associated enterprise or,
•  where the terms of the relevant transaction are determined in substance between such other person and the associated enterprise; and
•  either the enterprise or the associated enterprise or both of them are non-residents,

then such transaction entered into between the enterprise and the other person shall be deemed to be an international transaction entered into between two associated enterprises, whether or not such other person is a non-resident.

Example
If A Ltd., an Indian company, has entered into an agreement for sale of product X to Mr. B, an unrelated party, on 1/6/2015 and Mr. B has entered into an agreement for sale of product X with C Inc., a non-resident entity, which is a specified foreign company in relation to A Ltd., on 30/5/2015, then, the transaction between A Ltd. and Mr. B shall be deemed to be an international transaction entered into between two associated enterprises, irrespective of whether or not Mr. B is a non-resident.

Note – C Inc. is deemed to be an associated enterprise of A Ltd. since it is a specified foreign company in relation to A Ltd., which means that A Ltd. holds 26% or more in the nominal value of the equity share capital of C Inc.

(3) The scope of “international transaction” shall include :

	Transactions	Amplification of scope of terms used
(1)	Purchase, sale, transfer, lease or use of tangible property	Tangible property includes – building, transportation vehicle,  machinery, equipment, tools, plant,  furniture,  commodity or  any other article, product or thing;
(2)	Purchase, sale, transfer, lease or use of intangible property, including transfer of ownership or the provision of use of certain rights	“Use of certain rights” refer to –  land use,  copyrights, patents, trademarks, licences, franchises,  customer list, marketing channel, brand, commercial secret,  know-how,  industrial property right,  exterior design or practical and new design or  any other business or commercial rights of similar nature.
(3)	Capital financing	any type of long-term or short-term borrowing,  lending or guarantee,  purchase or sale of marketable securities or  any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business
(4)	Provision of services	provision of market research,  market development,  marketing management,  administration,  technical service,  repairs,  design,  consultation,  agency,  scientific research,  legal or accounting service.
(5)	Business restructuring or reorganization entered into by an enterprise with an associated enterprise	All such transactions are included in the definition of “international transaction”, whether or not it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date.

(4) The expression “intangible property” shall include:

	Type of intangible asset in relation to	Examples of each type of intangible asset
(1)	Marketing	Trademarks  trade names  brand names  logos
(2)	Technology	Process patents  patent applications  technical documentation such as laboratory notebooks  technical know-how
(3)	Artistic	literary works and copyrights  musical compositions  copyrights  maps  engravings
(4)	Data processing	proprietary computer software  software copyrights  automated databases  integrated circuit masks and masters
(5)	Engineering	industrial design  product patents  trade secrets  engineering drawing and schematics  blueprints  proprietary document
(6)	Customer	customer lists  customer contracts  customer relationship  open purchase orders
(7)	Contract	favourable supplier  contracts,  licence agreements  franchise agreements  non-compete agreements
(8)	Human	trained and organised work force  employment agreements  union contracts
(9)	Location	leasehold interest  mineral exploitation rights  easements  air rights  water rights
(10)	Goodwill	institutional goodwill  professional practice goodwill  personal goodwill of professional  celebrity goodwill  general business going concern value
(11)	methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, or technical data;
(12)	any other similar item that derives its value from its intellectual content rather than its physical attributes.

•  Transaction :  The word “transaction” has been defined in section 92F to include an arrangement, understanding or action in consent

(i) whether or not such arrangement, understanding or action is formal or in writing; or

(ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.

It may be noted that one of the parties to the international transaction should be a non-resident. Therefore, transactions between a resident assessee (“A” Ltd.) and its foreign branches or between its two or more foreign branches will not be considered as international transactions. This is for the reason that when “A” Ltd. is a resident in India, all its foreign branches will be deemed to be resident in India and transactions between Head Office and branches or between branches inter-se will be considered as transactions between residents. Even otherwise there can be no avoidance of income in the transactions between Indian Head Office and foreign branches.

On the other hand, if an Indian branch of a foreign company (“B” Ltd.) is having a transaction with the head office the same will be covered by the definition of international transaction between associated enterprises. This is because the Indian branch (permanent establishment of “B” Ltd.) will be liable to tax in India in respect of its Indian operations and, therefore, any transaction between the Indian branches of “B” Ltd. with its head office in U.K. or with any of the branches of “B” Ltd. outside India will be considered as an international transaction and it will have to establish that the transaction is at an arm’s length price. This will be the position even in respect of transactions between a parent company (“A” Ltd.) and its foreign subsidiary and, therefore, such transactions will have to comply with the provisions of transfer pricing regulations.