Transfer Pricing Documentation Study

XYZ International, Inc.

XYZ Consulting Group, Inc.
XYZ Consulting India Private, Ltd.

Fiscal Year Ended March 31, 2012

Indian Revenue Service

FINAL
 Table Of Contents
EXECUTIVE SUMMARY......................................................................................................................... 2
REGULATORY ENVIRONMENT ............................................................................................................ 4
CORPORATE OVERVIEW ................................................................................................................... 19
Overview of XYZ Consulting India Private, Ltd ................................................................................. 19
Overview of XYZ Consulting Group, Inc. .......................................................................................... 19
Organizational Structure ................................................................................................................... 20
CONTROLLED TRANSACTIONS ........................................................................................................ 21
Controlled Transaction for the Rendering of High level IT/data analytics services by XYZ India on
behalf of XYZ US .............................................................................................................................. 21
Documentation .............................................................................................................................. 21
Functional Analysis Summary ...................................................................................................... 21
Functional Analysis Details ........................................................................................................... 22
Service Transaction Eligibility ....................................................................................................... 24
Controlled Transaction for the Licensing of Software Licensing from XYZ US to XYZ India ........... 25
Documentation .............................................................................................................................. 25
Functional Analysis Summary ...................................................................................................... 26
Functional Analysis Details ........................................................................................................... 27
METHOD EVALUATION....................................................................................................................... 33
Method Evaluation for the Rendering of High level IT/data analytics services by XYZ India on
behalf of XYZ US .............................................................................................................................. 33
Methods Applied ........................................................................................................................... 34
Methods Not Applied .................................................................................................................... 34
Method Evaluation for the Licensing of Software Licensing from XYZ US to XYZ India .................. 34
Methods Applied ........................................................................................................................... 35
Methods Not Applied .................................................................................................................... 35
ECONOMIC ANALYSIS FOR THE RENDERING OF HIGH LEVEL IT/DATA ANALYTICS SERVICES
BY XYZ INDIA ON BEHALF OF XYZ US............................................................................................ 36
Profit Based Economic Analysis ....................................................................................................... 36
Tested Party Identification (XYZ Consulting India Private, Ltd) ................................................... 36
Tested Party Information .......................................................................................................... 36
Comparable Uncontrolled Taxpayer Identification ................................................................... 38
Perform the Arm’s Length Analysis .......................................................................................... 41
Arm’s Length Range ................................................................................................................. 41
ECONOMIC ANALYSIS FOR THE LICENSING OF SOFTWARE LICENSING FROM XYZ US TO
XYZ INDIA ............................................................................................................................................. 43
Transaction Based Economic Analysis ............................................................................................. 43
Comparable Uncontrolled Price Analysis ..................................................................................... 43
Comparability Analysis ................................................................................................................. 46
Analysis for Uncontrolled Transactions ........................................................................................ 46
Arm’s Length Range Construction ................................................................................................ 61
APPENDICES ....................................................................................................................................... 63
Appendix: Legal Entity Financial Information .................................................................................... 64
Appendix: Applicable Methods .......................................................................................................... 65
Appendix: Comparable Taxpayers (High Level IT/Data Analytics Service)...................................... 69
Appendix: Comparables’ Financials (High Level IT/Data Analytics Service).................................... 85

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Executive Summary
I. Overview

XYZ Consulting Group, Inc. (“XYZ US”) has prepared this study to document the arm’s length nature
of the intercompany transactions between itself and its affiliate, XYZ Consulting India Private, Ltd.
(“XYZ India”). XYZ International, Inc. (“XYZ International” or “the Company”) is the parent company of
XYZ US and XYZ India. XYZ International provides management, technology, and policy consulting
and implementation services to government, commercial and international clients.

II. Intercompany Transactions

The focus of this study pertains to the following intercompany transactions for the fiscal year ended
March 31, 2012:

- XYZ India provides model maintenance, data analytics and information technology (“IT”) services for
power, energy and environmental sector clients on behalf of XYZ US.

- XYZ India pays a product fee to XYZ US related to the distribution of software products owned by
XYZ US.

III. Methodology

Functional analyses have been conducted to identify and characterize the relevant intercompany
transaction covered by the analysis. The functions performed, assets employed and risks assumed by
each entity in connection with the intercompany transaction has been identified.

The Transactional Net Margin Method (“TNMM”) has been selected as the most appropriate method
based on the availability of reliable data and because comparable uncontrolled transactions with which
to apply the transactional methods could not be identified reliably. XYZ India has been selected as the
tested party on the basis that it provides high level IT/data analytics services, making its profitability
dependent on the fees it receives for these services. Independent companies with similar functions to
those of the tested party were reliably identified. The profitability of the tested party was then
compared to that of the independent companies, effectively measuring the arm’s-length nature of the
intercompany transaction.

Taxpayers that apply the TNMM use a Profit Level Indicator (“PLI”) that would provide the most
reliable indication of the operating profitability that would have been achieved if the same transaction
had taken place between unrelated parties. The analysis of high level IT/data analytics services uses
the net cost plus ratios of the comparable companies to construct an arm’s length range of operating
profitability, against which the tested party’s operating profitability can be compared. The net cost plus
ratio is defined as the pre-tax, pre-interest, pre-extraordinary items operating profit divided by total
costs. The net cost plus ratio evaluates operating profits based on a mark-up on all costs related to the
provision of services. For service providers, it is more reliable to utilize a cost base to compare the
profitability of the controlled taxpayer to uncontrolled taxpayers engaged in similar business activities.

XYZ US is compensated for allowing distribution of software products (the IP for which is owned by
XYZ US) through two separate fees; a fee based on license revenue earned by XYZ India and a fee

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 Executive Summary

based on services revenue earned by XYZ India. The fee is split as such due to the fact that the entity
signing a contract with a customer may not be the entity that is rendering services related to this
contract, in which case a separate fee would be paid by each entity for its specific activity, either
licensing or services, related to the customer contract. In this case, however, XYZ India is engaged in
both licensing and service activities for third party contracts related to the intellectual property owned
by XYZ US. Therefore, XYZ India pays a percentage of its revenue derived from service fees and a
different percentage of its revenue derived from licensing fees to XYZ US. The combined amount paid
by XYZ India to XYZ US is known as the product fee. For the purposes of this analysis, it is considered
most reliable to document the arm's-length nature of the product fee by comparing the net product fee
as a percentage of total revenues to rates for comparable third party software licensing contracts.
Therefore, the Comparable Uncontrolled Price ("CUP") method was selected as the best method. A
search was performed for comparable third party software licensing agreements in the
telecommunications industry in order to determine a reliable arm's-length range with which to
benchmark the intercompany product fee.

IV. Conclusion

For FYE 2012, the range of net cost plus ratios established by the comparable companies has a
minimum of -XX percent, a lower quartile of XX percent, an upper quartile of XX percent and a
maximum of XX percent, with a median of XX percent.

The range of rates for the set of comparable unrelated trademark licensing agreements is between XX
percent and XX percent, with a median of XX percent. During the fiscal year 2012, XYZ India paid a
net product fee of XX percent of its revenue to XYZ US. Therefore, it can be concluded that the
product fee paid by XYZ India to XYZ US is in accordance with the arm's-length standard.

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Regulatory Environment

Statutory Rules/Regulations/Circulars

The main transfer pricing provisions in India can be found in Sections 92 to 92F of the Income Tax Act
of 1961 (“ITA”).They were introduced by the Finance Act1 (“FA”) of 2001, and amended soon
thereafter by the FA of 2002. Section 92 introduces the explicit rule that “Any income arising from an
international transaction shall be computed having regard to the arm’s length price”. Interest arising
from international transactions is specifically included in the arm’s length standard. The provisions also
cover cost sharing and contribution agreements in an international transaction. The new rules became
effective as of 1 April 2001. The Central Board of Direct Taxes (“CBDT”) is the main tax authority in
India with regard to direct taxes and administers the transfer pricing rules.

The original legislative provision covering transfer pricing in India was Sec. 92 of the ITA. This was
very similar to the original provision in Sec. 42(2) of the ITA of 1922, i.e. the predecessor act,
introduced in the colonial period. The language of that provision was very broad, i.e. it covered
situations where a non-resident carried on business with a resident, and the Assessing Officer (“AO”)
considered that, by virtue of the close connection between them, the business was so arranged as to
produce either no profits for the resident or less than the profit which might ordinarily have been
expected. The AO could determine the amount of income which might reasonably be considered to
have accrued to the resident. After the broad economic liberalization of the early 1990’s, the Indian
government felt it necessary to implement a more comprehensive transfer pricing regime.

Section 92 of the ITA was supplemented by Rule 10 and Rule 11 of the Income Tax Rules (“IT Rules”)
of 1961, which set out the various methods for computing the transfer pricing adjustment. Along with
the new legislation, Rules 10A-10E of the IT Rules of 1962 were introduced, hereafter referred to as
the Indian Transfer Pricing Regulations (“TPR”). These set out the manner and circumstances in
which different methods of determination of the arm’s length price may be applied. These rules also
set out the form of the transfer pricing reports to be provided, and the documents and information
required to be maintained by taxpayers. In addition, Circular 12/2001 entitled “clarification on
provisions governing transfer pricing in an international transaction” outlined some preliminary views of
the tax authorities in application of the new regime.

The Direct Taxes Code Bill of 2009 is to introduce, when passed by the Lok Sabha, a new Direct Tax
Code (“DTC”) that will replace the ITA. The DTC contains new international tax provisions including an
extension of the transfer pricing rules to transactions between related entities in India and the
introduction of detailed provisions for advance pricing agreements.

As the DTC is still under consideration, the Finance Bill (“FB”) 2012 has included provisions that will
amend the ITA to allow for domestic transfer pricing rules and advance pricing agreements. The FB
2012 introduces section 92BA of ITA to extend the transfer pricing rules to apply to transactions
between related resident parties covered by Secs. 40A, 80-1A, 10AA and 80A of the ITA (which are
sections related to section 80-1A) or other transactions determined by the Board, where the aggregate
amount of the transactions exceeds INR 50 million in a year. This provision takes effect from 1 April
2013. New Secs. 92CC and 92CD have been inserted into the ITA by the FB 2012 to introduce
advance pricing agreements from 1 July 2012.

The TPR contain several concepts that are substantially similar to concepts of the Organization for
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Economic Co-operation and Development (”OECD”) Transfer Pricing Guidelines . Although India is
not a member of the OECD, the CBDT has nonetheless referred to the OECD Guidelines, consulted
OECD member countries and studied their transfer pricing regulations while drafting India’s TPR.
Further, the courts have referred to the OECD Guidelines when deciding on certain issues and have

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held them to be of persuasive value. The OECD has actively supported the CBDT’s effort to
administer and facilitate implementation of transfer pricing legislation in India.

Arm's Length Principle

Section 92F of the ITA defines the arm’s length price as “a price which is applied or proposed to be
applied in a transaction between persons other than associated enterprises, in uncontrolled
conditions”. The arm’s length principle is based on the concept that market forces are the best way to
allocate resources and profits of the enterprise and therefore all transactions between associated
enterprises should be compared and benchmarked with transactions between independent parties.

Section 92C of the ITA provides several methods for determining the arm’s length price and requires
application of the most appropriate method; it also provides for the power of the authorities to
prescribe the appropriate method, having regard to the nature of the transaction or of the type of
associated persons or the functions performed by such persons. In cases where more than one result
is determined, the arm’s length price shall be the arithmetic mean, with a tolerance range not
exceeding 5% above or below the price of the controlled transaction. The application of the arm’s
length standard is set aside in cases where such application would result in the reduction of income
subject to tax; in other words, the arm’s length standard can only increase the amount of taxable
income.

Section 92A of the ITA defines the meaning of the expression “associated enterprise”. Section 92A(1)
of the ITA gives a general definition of associated enterprises, based on the concept of participation in
management, control or capital; this provides that direct as well as indirect participation in the
management, control or capital of another enterprise, or such participation by the same person in two
enterprises, will cause the enterprises to be associated. The tax treaties concluded by India dealing
with transactions with associated enterprises contain a similar definition, which reflects Article 9 of the
OECD Model Tax Convention (“OECD Model”). Although the TPR give an elaborate definition of the
term “associated enterprises”, they do not clarify or elaborate on terms such as “participation in
management”, “control” and “capital”.

Section 92A (2) of the ITA specifies circumstances under which two enterprises shall be deemed to be
associated enterprises. This supplements the above basic definition by listing various situations under
which two enterprises shall be deemed to be associated enterprises:

− equity holding of at least 26%;

− control of composition of the board of directors;
− advancing of loans (51% of assets) or providing of guarantees (10% of total borrowings);
− dependence on use of intangibles such as patents, licenses, business or commercial rights, etc.;
− franchisee;
− effective influence over supply of raw materials (one enterprise purchases 90% of its raw materials
from another enterprise for the purpose of manufacture or processing of goods or articles and the
price or other related conditions are influenced by the supplying enterprise);
− effective influence over sale of finished product, where an enterprise carrying on the business of
manufacturing or processing of goods or articles sells the same to another enterprise, or to an
enterprise specified by another enterprise, and the price and related conditions are influenced by
such other enterprise;
− Appointment of more than half the governing board members by another enterprise and
prescribed relationships of mutual interest.

The term “enterprise” is defined very widely and covers almost every type of business activity that an
entity would normally engage in. Broadly, it includes business activities involving tangible assets,
intangible assets, services, investments, loans and shares/securities. Further, an undertaking is
considered to fall within the definition of an enterprise if it is or has been engaged, or is proposed to
engage, in specified activities or business, whether such specified category of activity was carried on

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 Regulatory Environment

directly or through a subsidiary.3 The term “enterprise” can apply to all categories of person; therefore,
any enterprise that is a person as defined in Sec. 2(31) of the ITA would be an enterprise if it were
engaged in specified categories of activity/business, whether directly or through a subsidiary.

Relevant Tax Law

As discussed above, Sec. 92 of the ITA constituted the main transfer pricing legislation in India until
2001. Given the nature of the Indian economy prior to its economic liberalization in 1991, there were
very few instances when the original Sec. 92 of the ITA was sought to be applied. However, a case
from that period establishes that the application of Sec. 92 of the ITA and Sec. 9(1)/Sec. 5 (the basic
charging provisions in ITA) are mutually exclusive (Subramania Chetty v CIT 46 ITR 724). The impact
of this would be that the operation of Sec. 92 of the ITA could create an independent liability to tax.
There is an alternative view that as Sec. 5 of the ITA commences with the words “Subject to the
provisions of this Act…” only income brought into the charge to tax by Sec. 5 would be covered by
Sec. 92 (and subsequent amendments).

Sections 92A et. seq. of the ITA recognized that international transactions between associated
enterprises may not be subject to the same market forces as transactions between independent
parties. Transfer pricing principles brought in by those sections apply to “international transaction(s)”,
defined to include a wide range of revenue and capital transactions between two or more associated
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enterprises, either or both of whom are non-residents.

The TPR were introduced by substitution of the relevant rules 10A to 10E in the IT Rules. The TPR are
quite comprehensive in the sense that they explicitly lay down the methodologies to be applied for
determining the arm’s length price and the documentation to be maintained by taxpayers. The term
“associated enterprises” is defined more broadly than in the OECD Guidelines. The following
transactions are covered by the TPR:

− transactions relating to income (revenue);

− allowances for any expenses or interest; and
− cost-sharing arrangements.

The Finance Act of 2009 empowered the CBDT to make a safe harbor rule which was due to be
elaborated with implementing regulations by FA 2010; this was however ignored in the FB of 2010 and
2011. Under the proposed safe harbor the burden imposed in applying the arm’s length principle can
be relieved, by providing for circumstances in which a taxpayer could follow a set of rules to avoid
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transfer pricing adjustments.

The DTC 2009 was released by the Finance Ministry on 12 August 2009 along with a discussion
paper. The transfer pricing provisions addressed include: a) definition of associated enterprises, b)
selection of cases for transfer pricing assessments, and c) introduction of APAs. In general, the
provisions covering transfer pricing in the DTC are more comprehensive than the current regime as
set out in the ITA and TPR.

The definition of an international transaction for transfer pricing purposes has been extended in the FB
2012 by inserting an Explanation to Section 92B of the ITA. This Explanation confirms that the
definition covers a business restructuring or reorganization entered into by a taxpayer with a related
party whether or not this restructuring has any influence on the profits, losses, income or assets of the
entities. The definition was also confirmed to cover corporate guarantees and other financial
transactions, market research and marketing development. The amended definition of an international
transaction is to apply retrospectively from 1 April 2002.

The FB 2012 has introduced a number of new provisions in relation to international taxation and also
introduces a general anti-avoidance rule (“GAAR”) which is to apply from 1 April 2013. The GAAR will
apply to an arrangement one of whose purpose is to obtain a tax benefit and which satisfies one of
four tests. These tests are that the arrangement creates rights or obligations that are not normally

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created by entities at arm’s length; the arrangement results in the misuse or abuse of tax provisions;
that it lacks commercial substance; or that the arrangement is carried out in a way that would not
normally be employed in bona fide arrangement. The GAAR is also included in the DTC.

The following list covers the key transfer pricing rules and regulations in India:6

− Sec. 40A(2) of the ITA 1961

− Secs. 92-92F, 271, 271AA, 271BA, 271G of the ITA 1961
− Rule 10 to 10E of the IT Rules 1962 CBDT Circular No 12/2001
− CBDT Circular 12 of 2001
− CBDT Circular 14 of 2001, Paras. 55.1 - 55.23
− Instruction 3 of 2003, dated 20 May 2003

There has been significant litigation on the determination of arm’s length prices. A review of tribunal
decisions (the first level of judicial appeal, beyond the administrative appeal within the tax authority
structures) shows an appreciation of the OECD Guidelines, and an attempt to apply them as
considered suitable. It also shows that Indian tribunals have often ruled against the tax authorities
where it was considered that a very formulary approach was being used which ignored past year’s
7
data or a narrow application of comparables was being made. As the Indian courts examine the
application of current law, more guidance will become available.

In Honeywell Automation India Ltd., it was held that comparable data for subsequent years (or for
earlier years, unless material facts are revealed by such data) should not be used in a comparability
analysis. This ruling provided useful guidance on the use of comparable data and on the type of data
that may be used. Skoda Auto India Private Limited provided guidance on adjustment for high startup
costs and the use of the comparable uncontrolled price (“CUP”) method. In Perot Systems TSI (India)
Ltd. an interest-free loan between two related parties was held to be a clear case of transfer of profit
from India to its associated entity located in a tax haven where there was no corporate income tax. In
Morgan Stanley and Co., the Supreme Court found that a permanent establishment (“PE”) had been
remunerated at operating cost plus an arm’s length markup determined using the transactional net
margin method (“TNMM”), and it was determined that the transfer pricing analysis adequately reflected
the functions performed and the risks assumed by the PE. It was however necessary to ensure that all
operating costs were adequately captured in the cost base. Mentor Graphics (Noida) Private Limited
illustrated the importance of carrying out a detailed transfer pricing analysis of the specific
characteristics of the international transaction with an associated enterprise. The Supreme Court in the
case of GlaxoSmithKline Asia (P) Ltd found that the application of the concept of fair market value to
domestic transactions led to complications and therefore recommended that transfer pricing rules
should be extended to apply to domestic transactions, a measure that was subsequently included in
the DTC and the FB 2012.

Special Regimes/Rules

Small and Medium Enterprises

Taxpayers having in aggregate international transactions below a prescribed threshold (currently INR
10 million) are exempted from maintaining prescribed detailed documentation.

Permanent Establishments

A PE of a foreign enterprise is also considered to be an associated enterprise for transfer pricing

purposes. Accordingly, transactions between a foreign enterprise and its Indian PE are within the
ambit of the code. The term “permanent establishment” is defined in Sec. 92F (iii) (a) of the ITA as a
fixed place of business through which the business of the enterprise is wholly or partly carried on.
Accordingly, where for example a foreign company has a project office in India, the transactions of the
project office with its head office, as well as other group companies of the head office, are subject to
the transfer pricing regime. It is generally considered that the inclusion of PEs in the transfer pricing

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 Regulatory Environment

rules is a general one, and accordingly fixed PEs, service PEs, construction PEs and agency PEs are
all included within the scope of the provisions.

Tax Administration

Corporate income tax is imposed on companies, which are defined as Indian companies, (companies
formed and registered under Indian law and any institutions, bodies, etc. declared by the authorities to
be companies) and corporate bodies incorporated outside India. A domestic company is an Indian
company or any other company which has made prescribed arrangements for the declaration and
payment of dividends in India out of income subject to tax in India. Companies incorporated outside
India which do not make the prescribed arrangements are foreign companies.

Corporate taxation essentially operates on a self assessment system, where companies must pay
advance tax of their own accord, based on their estimate of their current income, and submit a return
at the specified dates. The corporate tax return must be accompanied by proof of payment of tax and
interest. Currently, the specified dates are:

− 30 September following the financial year, in the case of companies and persons whose accounts
are required to be audited under the provisions of the ITA or any other regulations;
− 31 July following the financial year, in other cases.

Section 139 of the ITA was amended by the FB 2012 to provide for compulsory filing of a tax return
with effect from 1 April 2012 by any resident having an asset, or an interest in any entity, situated
outside India, or the authority to sign in respect of any account outside India. The time limit for issuing
a notice to reopen an assessment is extended to 16 years where income in relation to an asset or
interest in an entity outside India has escaped assessment.

Taxpayers subject to the transfer pricing regime must obtain and furnish an Accountant’s Certificate
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(Form 3CEB) regarding adequacy of documents maintained. In general, companies are currently
required to file such reports by 30 September, i.e. the same time as tax returns. However, the FA 2011
extended the date for filing the reports to 30 November. Form 3CEB requires disclosure under each
category of transaction, including the transaction value, the arm’s length price and the methodology
applied to justify it. Particulars are given in the annex to Form 3CEB.

It is recognized that transfer pricing is a specialist area and therefore all administration in this area is
delegated to specialists. Under the current system of transfer pricing assessments, in all cases where
the value of international transactions exceeds a prescribed threshold (currently INR 50 million), the
AO is required to make a reference under Sec. 92CA(1) of the ITA to the designated Transfer Pricing
Officer (“TPO”).9 The rules originally allowed the TPO to only consider adjustments when referred by
the AO; however from 2010 the TPO was authorized to make changes independently in appropriate
circumstances, a power that was strengthened in 2011. A change in the FB 2012 would empower a
TPO to determine the arm's length price for transactions independently, even if the transactions are
not referred to the TPO, where international transactions are found that have not previously been
disclosed by the taxpayer.

Tax administration in India is handled by a network of tax offices spread nationwide, and organized
under regional Commissioners of Taxation. Specialist offices in the major metro cities usually handle
the most complex cases. A transfer pricing cell at the central level is headed by the Director-General
of Income Tax (International Taxation and Transfer Pricing) with Directors of Income Tax (Transfer
Pricing) in major locations (including Mumbai, Delhi, Bangalore, Chennai, Kolkata and other key
cities). The directorate is manned by Additional Directors of Income Tax, who are designated as
TPOs. The 2011 budget also announced plans to strengthen the CBDT’s foreign tax division to
effectively handle the increase in tax information exchange and transfer pricing issues. The
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responsibility chart of officials is set out in a notification.

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 Regulatory Environment

Transfer Pricing Methods

The Indian legislation is broadly guided by the OECD Guidelines and the legislation prescribes the
same five methods to determine an arm’s length price. Tax authorities generally recognize the OECD
Guidelines for local tax matters to the extent they are not inconsistent with Indian tax laws. The TPR
prescribe standards for comparability of an international transaction with an uncontrolled transaction
as follows:11

− the specific characteristics of the property transferred or services provided in either transaction;
− the functions performed, taking into account assets employed or to be employed and the risks
assumed by the respective parties to the transactions;
− the contractual terms (whether or not such terms are formal or in writing) of the transactions that
lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided
between the respective parties to the transactions; and
− the conditions prevailing in the markets in which the respective parties to the transactions operate,
including the geographical location and size of the markets, the laws and government orders in
force, costs of labor and capital in the markets, overall economic development and level of
competition and whether the markets are wholesale or retail.

The CBDT is given the authority to prescribe any other methods and adjustments necessary to
12
determine the arm’s length price. Section 92C of the ITA mentions the following specific methods:

(a) CUP method;

(b) resale price method;
(c) cost plus method;
(d) profit split method;
(e) TNMM; and
(f) such other method as may be prescribed by the CBDT.

The taxpayer is given an option to select any of the prescribed methods as the most appropriate
method considering the facts and circumstances of the case and the relevant provisions of the TPR.
The taxpayer is required to demonstrate the reasons for the selection of a particular method as the
most appropriate method. However, to arrive at the most appropriate method, the taxpayer has to
evaluate all the methods and document the reasons for rejection of all the methods other than the one
selected as the most appropriate. It is to be noted that the TPR do not provide any hierarchy of
methods.

Rule 10C (2) of the IT Rules of 1962 further identifies the following factors that have to be taken into
account for selecting the “most appropriate method”:

− the nature and class of the international transaction;

− the class or classes of associated enterprises entering into the transaction and the functions
performed by them, taking into account assets employed or to be employed and risks assumed by
such enterprises;
− the availability, coverage and reliability of data necessary for application of the method;
− the degree of comparability existing between the international transaction and the uncontrolled
transaction and between the enterprises entering into such transactions;
− the extent to which reliable and accurate adjustments can be made to account for differences, if
any, between the international transaction and the comparable uncontrolled transaction or
between the enterprises entering into such transactions; and
− the nature, extent and reliability of assumptions required to be made in application of a method.

The most appropriate method, as referred to in Sec. 92C (1) of the ITA, should be applied for
determination of the arm’s length price. The application of this may be prescribed by the CBDT; some
flexibility was given in the law by allowing a +/-5% tolerance range of uncontrolled prices. This

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however created some dispute. Although the CBDT took the view that the benefit of the range only
applied where the transaction price was within 5% of the mean arm’s length price, taxpayers argued
that the benefit should be allowed even when the transaction price falls outside this range, and in this,
they were supported by some dispute resolution bodies. The law has been clarified retrospectively
from 1 October 2009 so taxpayers are in no doubt that the 5% range is in relation to the transaction
price (rather than the arithmetic mean) and is not a standard deduction.13

Comparable data is crucial in determining and defending transfer pricing positions in India and,
therefore, taxpayers are required to maintain information on comparables as part of their transfer
pricing documentation. The CBDT prefers that Indian comparables should be used to the extent
possible. Use of foreign comparables is generally not acceptable, unless the tested party is located
overseas. In some cases, TPOs have exercised their power to obtain private information from other
taxpayers under their general powers and used the same comparables for the taxpayer under
review.14 In determining comparability, the key questions are about the property transferred, functions
performed, contractual terms, risks assumed and economic and market circumstances, as well as
business strategies.

Special Areas for Consideration

Intangible Assets

Intangible assets are defined to include know-how, patents, copyrights, trademarks, licenses,
franchises or any other business or commercial rights of a similar nature.15 Trademarks, brands,
goodwill and technical know-how relating to the manufacture of goods would all qualify to be treated
as capital assets within the meaning of the ITA. In general, only legal ownership is used to qualify
ownerships and economic ownership has not yet been specifically recognized. However, the definition
of related parties does cover economic relationships separately from legal relationships.

The definition of international transactions for transfer pricing purposes has been clarified by the
addition of an Explanation to Sec. 92 of the ITA, inserted by the FB 2012. This list confirms that the
definition of intangibles includes customer lists, franchises and commercial secrets in addition to those
mentioned above. This definition applies retrospectively from 1 April 2002.

The rules do not provide for any specific methods for benchmarking the arm’s length price in relation
to transfer/use of intangibles, and the taxpayer is free to choose the most appropriate method. One of
the key difficulties in this area is however the absence of third-party benchmarks to evaluate licensing
of intangibles. A further challenge lies in the way the provisions have been implemented in the case of
intangibles, where taxpayers may need to demonstrate the payment for the intangible as a separate
transaction, and justify the need for the payment.

No specific comparability criteria are provided in respect of intangibles, and the normal standards for
comparability of intercompany transactions apply.

Intra-group Services

Intra-group services are considered to be international transactions under the rules and should comply
with the arm’s length standard. The Indian legislation and TPR do not, however, provide any detailed
guidance on this area; therefore the major source of such guidance is the OECD Guidelines. No
specific rules have been determined such as a benefit test to benchmark the arm’s length price for
services provided.

Section 92B of the ITA has been amended by the FB 2012 to clarify that the definition of “international
transactions” includes the provision of services including market research, marketing development,
marketing management, administration, technical services, repairs, design, consultation, agency,
scientific research and legal or accounting services.

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In general, services can be divided into product-related, management-related, and general services.
The practice is to ask for evidence that would substantiate delivery of services by group members and
other foreign affiliates. Such evidence must be more than a simple invoice or service agreement; it is
customary to inquire as to the tasks performed, their qualification to provide such services, and/or
whether such services were actually needed by the taxpayer. CBDT officials will then enquire as to
whether services have been appropriately compensated, and seek to determine the arm’s length price.
It is common to ask whether independent parties would normally pay for such services, and the level
of compensation in such cases, to seek documentation of a functional analysis of the various group
members and to ask to see evidence that cost-based charges have been computed fairly, e.g. by
using direct costs plus a reasonable level of indirect costs.

Cost Contribution Arrangements

There are no special rules for cost contribution arrangements (“CCAs”). Where two or more associated
enterprises enter into an arrangement for the allocation of costs, such services must be allocated at
16
the arm’s length price of such benefit, service or facility. Allocations made by the taxpayer will be
scrutinized by the CBDT to ensure that the costs attributed are adequate. There are no rulings or
guidance on cost contribution arrangements in the case of development of intangible property.

A ruling in relation to a CCA for services was handed down by the Income Tax Appellate Tribunal
(“ITAT”) in September 2011. The ITAT ruled that in determining the arm’s length price the TPO could
not make any judgment about the commercial wisdom of the taxpayer and cannot merely compare the
benefit received by the taxpayer to the cost incurred for the service. The correct measure is that the
taxpayer’s share of the costs should be consistent with the benefits expected to be received from the
services. The allocation of costs to the taxpayer should be done on the basis of actual costs and
should not include hypothetical costs.

Financial Services

The allowance for any expense or interest arising from an international transaction should also be
17
determined having regard to the arm’s length principle. Beyond this; there is no direct guidance on
treatment of financial services. Based on the general principles, intercompany lending and borrowing
transactions need to be conducted by reference to the ordinary arm’s length standard. Practice
suggests that determination of an arm’s length interest rate is based on the amount and duration of
the credit, the borrower’s credit rating, currency used, etc. Guidance is also available through the
maximum interest rates provided under the Foreign Exchange Management Act (“FEMA”), which is
the principal legislative instrument for managing exchange controls.

The FB 2012 has inserted an Explanation after Sec. 92B of the ITA to clarify that international
transactions include capital financing, any type of long term or short term borrowing, lending or
guarantee, purchase or sale of marketable securities, an advance, deferred payment, receivable or
any other type of debt arising in the course of business.

The use of internationally accepted rates, e.g. LIBOR, is common in determining arm’s length rates.
There is no specific guidance on trade credits, guarantee fees or securities transactions, other than
the general requirement that related-party transactions are conducted at arm’s length.

Documentation

Any person entering into an international transaction is required to keep and maintain the information
18
and documents as prescribed. A taxpayer who has entered into an international transaction must
keep and maintain information and contemporaneous documents, as may be prescribed.

Documentation would include all types of information, whether stored in physical or electronic form. A
list of the documentation required is as follows:19

11
 Regulatory Environment

Taxpayer documentation:
− a description of the ownership structure, with details of shares or other ownership interests held in
the taxpayer by the enterprises with whom the taxpayer has entered into an international
transaction;
− a profile of the multinational group of which the taxpayer is a part, along with the name, address,
legal status and country of tax residence of each of the enterprises comprised in the group with
whom international transactions have been entered into and ownership linkages with them; and
− a broad description of the business of the taxpayer and the industry in which it operates and of the
business of the associated enterprises with whom it has transacted.

Transaction documentation:
− the nature and terms (including prices) of transactions entered into with each associated
enterprise, details of property transferred or services provided and the quantum and the value of
each such transaction or class of such transactions;
− a description of the functions performed, risks assumed and assets employed or to be employed
by the taxpayer and by the associated enterprises involved in the transactions;
− a record of the economic and market analysis, forecasts, budgets or any other financial estimates
prepared by the taxpayer for the business as a whole and for each division or product separately,
which may have a bearing on the international transactions entered into by the taxpayer;
− a record of uncontrolled transactions taken into account for analyzing their comparability with the
transactions entered into by the taxpayer, including a record of the nature, terms and conditions
relating to any uncontrolled transactions with third parties which may be of relevance to the pricing
of the transactions;
− a record of the analysis performed to evaluate comparability of uncontrolled transactions with the
relevant transaction;
− a description of the methods considered for determining the arm’s length price in relation to each
transaction or class of transaction, the method selected as the most appropriate method, along
with explanations as to why the method was so selected, and how the method was applied in each
case;
− a record of the actual work carried out for determining the arm’s length price, including details of
the comparable data and financial information used in applying the most appropriate method and
adjustments, if any, which were made to account for differences between the international
transactions and the comparable uncontrolled transactions, or between the enterprises entering
into such transactions;
− the assumptions, policies and price negotiations, if any, which have critically affected the
determination of the arm’s length price;
− details of the adjustments, if any, made to transfer prices to align them with the arm’s length price
determined under these rules and consequent adjustment made to the total income for tax
purposes; and
− any other information, data or document, including information or data relating to the associated
enterprise that may be relevant for determination of the arm’s length price.

Optional documents:
− official publications, reports, studies and databases from the government of the country of
residence of the associated enterprise, or of any other country;
− reports of market research studies carried out and technical publications brought out by
institutions of national or international repute;
− price publications, including stock exchange and commodity market quotations;
− published accounts and financial statements relating to the business affairs of the associated
enterprises;
− agreements and contracts entered into with associated enterprises or with unrelated enterprises in
respect of transactions similar to the international transactions;
− letters and other correspondence documenting any terms negotiated between the taxpayer and
the associated enterprise; and

12
 Regulatory Environment

− documents normally issued in connection with various transactions under the accounting practices
followed.

Documentation must be contemporaneous20 and should be in place by the due date for filing the
income tax return. As mentioned above, Sec. 92E of the ITA provides that the taxpayer has to obtain,
from a chartered accountant or any other person qualified to be appointed as an auditor, a report
relating to the international transactions entered into by the taxpayer in the prescribed Form 3CEB
(Rule 10E). This report must be furnished by the taxpayer to the tax authorities on or before the due
date for filing the annual tax return.

Where an international transaction continues to have effect over more than one tax year, no new
documentation need be maintained separately in respect of each tax year, unless there is any
significant change in the nature or terms of the international transaction, in the assumptions made, etc.
The specified information and documents must be maintained by the taxpayer for a period of nine
years from the end of the relevant tax year.

Although the documentation is to be prepared and maintained by the taxpayer, it need not be provided
to the CBDT. Instead, the CBDT may request the documentation during the course of audit
proceedings. The information and documents must be submitted to the tax authorities within 30 days
of the receipt of notice (extendable by another 30 days). In-depth documentation and full disclosure of
all the controlled transactions and a detailed analysis of functions, assets and risks is key in mitigating
the risk of transfer pricing adjustments and penalties under the Indian transfer pricing rules.

Investigations, Audits and Adjustments

The selection process for the audit is based on the value of international transactions. The formal
21
processes regarding audit selection have been outlined in a public notification. A certain percentage
of tax returns are selected for detailed audit; the selection process is thus procedural and does not
deal with the qualitative aspects of the case. A notice is issued to the taxpayer within six months from
the end of the financial year in which the return is made; this specifies the records and documents
required.

The CBDT decided that in the initial years of implementation of the transfer pricing regime, and
pending the development of an adequate database, only a small number of cases would be selected
for audit. A threshold limit of INR 50 million of international transactions, in aggregate, was specified
which was subsequently raised to INR 150 million from 2005-2006 by the CBDT. The limit refers to
cases where a number of transactions between the same parties have an aggregate value equal to
22
the threshold; the limit is under review and may be changed.

The typical scenarios that are factors in audit selection are consistent losses of the taxpayer from
intercompany transactions, major changes in the profitability of the taxpayer and its associated
enterprises; unjustifiably large payment of royalties, technical services fees and management charges,
etc.

Audits are carried out by the TPO after reference from the corporate tax AO in the course of general
tax audit procedures. Initially such reference could only be made by the AO with the prior approval of
the commissioner of income tax (regional head of the CBDT field office). However, with effect from 1
April 2010, the TPO may issue a notice directly, and the FB 2011 extends this power.23 Also, the FB
2012 provides for the TPO to determine the arm’s length price without reference from the AO in cases
where the taxpayer has not notified the tax authorities of international transactions as required. The
notice for selecting a case must be issued within 6 months (12 months until 2006-2007) from the end
of the financial year in which the return is submitted. TPOs must provide an opportunity for the
taxpayer to submit evidence regarding the arm's length prices.24 TPOs are expected to consider the
appropriateness of the method selected and applied by the taxpayer, the reliability of data used and
other facts and circumstances in determining the arm's length prices, and are expected to document
them in their determination of the arm’s length price. If the TPO proposes to adjust the transaction

13
 Regulatory Environment

price, he has to provide the taxpayer an opportunity to state reasons why an adjustment should not be
made.

The CBDT has wide powers of assessment and information in cases where the return is not filed on
time, or if advance tax has not been paid on time. Assessment can be made on agents and other
representatives where the company is a non-resident. There are specific powers of information with
regard to transfer pricing cases. TPOs have been empowered to request information from banks, and
enjoy all the powers regarding discovery, production of evidence, etc. specified under Sec.
133(6)/Sec. 131/Sec. 133A25 of the ITA. A TPO can require any person to furnish information in
relation to such points or matters or to furnish statements of accounts and affairs as may be useful for
or relevant to any proceedings under the ITA. These cover (a) discovery and inspection; (b) enforcing
the attendance of any person, including any officer of banking company and examining him under
oath; (c) compelling the production of books of account and other documents; and (d) issuing
commissions.

The CBDT is also empowered to formulate safe harbor rules, i.e. to provide for the circumstances in
which the tax authorities should accept the transfer price declared by the taxpayers.26 These safe
harbor rules have not however been formulated yet. An Explanation has also been inserted in the
legislation to provide that “safe harbor” means circumstances in which the income tax authorities shall
accept the transfer price declared by the taxpayers.

In transfer pricing audits, if the taxpayer is found to have failed to conduct its transactions on an arm’s
length basis, the tax authorities have the right to make a transfer pricing adjustment. One
consequence of a transfer pricing adjustment is additional taxes being payable on the adjusted
income, even if the income might already be subject to tax in another jurisdiction. If the tax
adjustments result in additional taxes, penalties will be calculated based on the additional tax liability.
To recover any potential tax that might have been paid in another jurisdiction on the adjusted income,
the taxpayer may have to initiate a mutual agreement procedure (“MAP”).

Indian regulations do not provide for a corresponding adjustment; however, most of the treaties signed
by India have a related provision. The taxpayer may have to initiate competent authority proceedings
under a MAP. Indian rules do not specifically authorize a secondary adjustment.

Tax assessments must be completed within three years and nine months of the end of the financial
year (1 April to 31 March). However, if the revenue authority determines income evasion, an
assessment may be reopened within seven years of the end of the financial year. The taxpayer may
appeal to the appellate commissioner, within 30 days of the date of receipt of the scrutiny assessment
order. The office of the appellate commissioner is a quasi-judicial one, and acts as the administrative
appeal body. The decision of the appellate commissioner is reflected in an appellate order. This may
be appealed to the ITAT, the first judicial tribunal, after which an appeal lies to the High Court bench
with jurisdiction over the area. A final appeal lies to the Supreme Court.

From 2009, the law has been amended to accommodate an alternate dispute resolution (“ADR”)
mechanism which will allow a taxpayer to resolve transfer pricing issues without going through the
27
court system and settle the claims with the CBDT. There is no significant body of cases going
through this ADR system. The Dispute Resolution Panel (“DRP”) is empowered to confirm, reduce or
enhance the variations proposed by the tax administration in a draft order. The taxpayer has the right
to appeal against the order passed by the AO in carrying out the requirements of the DRP. The FB
2012 provides for the AO to file an appeal before the ITAT in the case of disagreement with an order
made following the requirements of the DRP, with effect from 1 July 2012.

Penalties

There are penalties of 2% of the value of the international transaction for non-maintenance as well as
for non-submission of documents by taxpayers.28

14
 Regulatory Environment

− for failure to keep and maintain information and documents on international transactions; or
− for failure to furnish information or documents under Sec. 92D of the ITA.

An additional penalty of INR 100,000 can be assessed for not filing the Accountant’s Report on the
requisite form within the due date. However, under the new DTC the penalties have been combined
and the new ceiling has been the maximum of INR 200,000 for the non-compliance.29

Finally transfer pricing adjustments considered to relate to concealed income can be 100%-300% of
the tax on adjustments made.30

Penalties may be avoided if taxpayers can demonstrate that in determining an arm’s length price it
exercised due diligence and good faith. Proper transfer pricing documentation and timely submission
of documentation to CBDT is required during assessment proceedings.

Treaties

India has 84 double tax treaties in force for avoidance of double taxation of the same income
internationally and to prevent tax evasion with the countries set out below. In general, the treaties
cover, among other items, dividends, interest, and royalties. Treaties follow the UN Model in some
aspects; in general, however, most Indian treaties follow, for the purposes of the associated
enterprises article, the wording of Art. 9 of the OECD Model. A detailed technical explanation of Art. 9
of the US-India treaty are available within the agreed Technical Explanation that accompanied the
treaty, which clarifies the applicability of the arms length standard in the treaty.

OECD Art. 9(1) OECD Art. 9(2) Relief from Competent

Treaty Country or Equivalent or Equivalent Double Taxation Authority
Armenia Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Australia Art. 9(1) Art. 9(3) Art. 24 Art. 3(1)(i)
Austria Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Azerbaijan Art. 7(7) None Art. 22 Art. 3(1)(c)
Bangladesh Art. 10(1) None Art. 25 Art. 3(1)(j)
Belarus Art. 9(1) None Art. 24 Art. 3(1)(h)
Belgium Art. 9(1) None Art. 23 Art. 3(1)(d)
Botswana Art. 9(1) Art. 9(2) Art. 24 Art. 3(1)(i)
Brazil Art. 9(1) None Art. 23 Art. 3(1)(h)
Bulgaria Art. 10(1) None Art. 25 Art. 3(1)(h)
Canada Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(g)
China Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(j)
Cyprus Art. 9(1) Art. 9(3) Art. 25 Art. 3(1)(e)
Czech Republic Art. 9(1) None Art. 24 Art. 3(1)(g)
Denmark Art. 10(1) Art. 10(2) Art. 23 Art. 3(1)(h)
Egypt Art. 10(1) None Art. 24 Art. 3(1)(h)
Faroe Islands Art. 10(1) Art. 10(2) Art. 23 Art. 3(1)(h)
Finland Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
France Art. 10(1) None Art. 25 Art. 3(1)(g)
Georgia Art. 7(7) None Art. 22 Art. 3(1)(c)
Germany Art. 9(1) None Art. 23 Art. 3(1)(j)

15
 Regulatory Environment

Greece Art. 4(1) None Art.19 Art. 2(1)(k)

Hungary Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(h)
Iceland Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Indonesia Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Ireland Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(g)
Israel Art. 9(1) Art. 9(2) Art. 24 Art. 3(1)(h)
Italy Art. 10(1) None Art. 24 Art. 3(1)(k)
Japan Art. 9(1) Art. 9(2) None Art. 3(1)(j)
Jordan Art. 9(1) Art. 9(2) Art. 24 Art. 3(1)(g)
Kazakhstan Art. 9(1) None Art. 24 Art. 3(1)(g)
Kenya Art. 10(1) Art. 10(2) Art. 24 Art. 3(1)(i)
Korea (Rep.) Art. 10(1) None Art. 24 Art. 3(1)(f)
Kuwait Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Kyrgyzstan Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(g)
Libya Art. 8(1) None Art. 20 Art. 2(1)(e)
Malaysia Art. 9(1) None Art. 23 Art. 3(1)(e)
Malta Art. 9(1) Art. 9(3) Art. 24 Art. 3(1)(d)
Mauritius Art. 9(1) None Art. 23 Art. 3(1)(h)
Mexico Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Moldova Art. 7(7) None Art. 22 Art. 3(1)(c)
Mongolia Art. 9(1) None Art. 24 Art. 3(1)(e)
Morocco Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(e)
Mozambique Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Myanmar Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(j)
Namibia Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Nepal Art. 9(1) None Art. 22 Art. 3(1)(f)
Netherlands Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(j)
New Zealand Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Norway Art. 10(1) None Art. 25 Art. 3(1)(h)
Oman Art. 10(1) None Art. 25 Art. 3(1)(e)
Philippines Art. 10(1) Art. 10(2) Art. 24 Art. 3(1)(h)
Poland Art. 10(1) None Art. 24 Art. 3(1)(h)
Portugal Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Qatar Art. 9(1) Art. 9(2) Art. 24 Art. 3(1)(g)
Romania Art. 10(1) None Art. 25 Art. 3(1)(h)
Russia Art. 9(1) None Art. 23 Art. 3(1)(k)
Saudi Arabia Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(h)
Serbia and Montenegro Art. 9(1) Art. 9(2) Art. 25 Art. 3(1)(11)
Singapore Art. 9(1) None Art. 25 Art. 3(1)(e)
Slovak Republic Art. 9(1) None Art. 23 Art. 3(1)(h)
Slovenia Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(h)

16
 Regulatory Environment

South Africa Art. 9(1) Art. 9(2) Art. 22 Art. 3(1)(e)

Spain Art. 10(1) None Art. 25 Art. 3(1)(j)
Sri Lanka Art. 9(1) Art. 9(2) Art. 24 Art. 3(1)(g)
Sudan Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Sweden Art. 9(1) None Art. 24 Art. 3(1)(i)
Switzerland Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(g)
Syria Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(j)
Taiwan Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(g)
Tajikistan Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(i)
Tanzania Art. 10(1) None Art. 25 Art. 3(1)(h)
Thailand Art. 9(1) None Art. 23 Art. 3(1)(h)
Trinidad and Tobago Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(h)
Turkey Art. 9(1) Art. 9(2) Art. 22 Art. 3(1)(i)
Turkmenistan Art. 9(1) Art. 9(2) Art. 24 Art. 3(1)(g)
Uganda Art. 9(1) Art. 9(2) Art. 23 Art. 3(1)(g)
Ukraine Art. 9(1) None Art. 24 Art. 3(1)(h)
United Arab Emirates Art. 9(1) None Art. 25 Art. 3(1)(j)
United Kingdom Art. 10(1) Art. 10(2) Art. 24 Art. 3(1)(i)
United States Art. 9(1) Art. 9(2) Art. 25 Art. 3(1)(h)
Uzbekistan Art. 9(1) None Art. 25 Art. 3(1)(e)
Vietnam Art. 9(1) None Art. 24 Art. 3 (e)
Zambia Art. 9(1) None Art. 24 Art. 3(1)(f)

India’s income tax treaties typically incorporate a dispute resolution mechanism, namely the MAP, for
the amicable settlement of cross-border tax disputes. The MAP article contains provisions for the
designated representatives from the Indian government and from the other country to interact with one
another, with the intention of resolving international tax disputes. In India, “competent authority” means
the central government in the Ministry of Finance (Department of Revenue), or their authorized
representative. At present, Joint Secretary of the Foreign Tax Division of the CBDT in the Ministry of
Finance is the competent authority.

The FB 2012 amends Sec. 90 of the ITA to require the submission of a Tax Residency Certificate by a
taxpayer looking to use the provisions of a double tax treaty, with effect from 1 April 2013.

Advance Pricing Agreements

The proposed DTC Bill gave authority to the CBDT to introduce a mechanism for APAs in India. While
the DTC is still not in force, new Secs, 92CC and 92CD of the ITA have been included in the FB 2012
to permit the negotiation of advance pricing agreements in respect of international transactions with
effect from 1 July 2012.

The APA mechanism proposed in the FB2012 is similar to the provisions included in the DTC. The
procedure is as follows:

− The taxpayer may approach the CBDT for determination of an arm’s length price with respect to
its international transactions;

17
 Regulatory Environment

− The arm’s length price determined by the CBDT must be in accordance with transfer pricing
provisions and if necessary the CBDT is empowered to make necessary adjustments to the arm’s
length price;
− The arm’s length price determined under the APA is binding on both the taxpayer and the tax
authority in respect to the international transaction covered under the APA; and
− The APA is valid for the period stipulated in the agreement with a maximum limit of five
consecutive years and remains valid unless there are any material changes to the law governing
the APA; and
− An APA can be declared by the Board to be void if it is concluded on the basis of fraud or
misrepresentation of the facts.

The Board is empowered to set out the form and procedure for an application for an APA.

Language

Rule 10D of the IT Rules does not require documentation in a specific language; however, as English
is the language of the courts and the preferred language for tax compliance, documentation can be
prepared in English.

__________________________
1
Many Commonwealth jurisdictions, including India and the UK, follow a system of annual Finance Acts, which incorporate
amendments to the taxing Acts (usually the Income Tax Act, a VAT or GST Act, etc.).
2
Organization for Economic Co-operation and Development’s (“OECD”) Transfer Pricing Guidelines for Multinational
Enterprises and Tax Administrations (OECD, Paris, 1995)
3
Sec. 92F (iii), ITA
4
Sec. 92B (1), ITA 1961
5
The Direct Tax Code Bill, 12 August 2009 (DTC), Ministry of Finance, India
6
Income Tax Department, India (http://law.incometaxindia.gov.in/TaxmannDit/IntTax/tpcont.aspx)
7
E.g. [2007] 18 SOT 76. MentorGraphics (NOIDA) (P) Ltd.vs DCIT Circle 6(1) (New Delhi); [2009] 30 SOT 486 Customer
Services India (P.) Ltd. vs. Assistant Commissioner of Income-tax, Circle-17(1), New Delhi
8
Under Rule 10E, IT Rules
9
Sec. 92CA, ITA 1961
10
S 994(E), dated 9 September 1994
11
Rule 10B (2), IT Rules
12
These methods are described in detail at Rule 10B, IT Rules 1962
13
As proposed in Finance Bill 2012
14
Sec. 133(6), ITA
15
Sec. 2(11) (b), ITA
16
Sec. 92(2), ITA
17
Sec. 92(1) ITA, Explanation
18
Sec. 92D, ITA
19
Rule 10D, IT Rules
20
Rule 10D (4), IT Rules
21
Instruction 3 of 2003, dated 20 May 2003
22
Ibid.
23
Sec. 92CA (2)/2A as amended by FA 2010/Finance Bill 2011
24
Sec. 92CA (3), ITA 1961
25
From 1 April 2011
26
New Sec. 92CB inserted by Finance (No. 2) Act, 2009
27
India Finance Bill 2009, 7/27/09, Lower House of Parliament
28
Secs. 271AA and 271G, ITA
29
The Direct Tax Code Bill, 8/12/09 (DTC), Ministry of Finance, India
30
271(1) (c) (iii) ITA, read with Explanation 7

18
Corporate Overview
To conduct a transfer pricing analysis it is necessary to have an understanding of the entities involved
in the controlled transaction(s) under review. To support the arm's length analysis, documentation has
been collected for each legal entity that has a controlled transaction that will undergo an arm's length
analysis. The information collected is general in nature and normally consists of a description of the
legal entity's primary business, an overview of its corporate history, and information on the industry in
which it operates. A description of the organizational structure covering all affiliates whose
transactions may be relevant for an analysis under the arm's length principle should also be prepared.
This includes foreign related parties which enter into transactions that directly or indirectly affect the
controlled transaction under review.

Below is the applicable information for the legal entities that have engaged in the controlled
transaction(s) under review.

Overview of XYZ Consulting India Private, Ltd

Corporate Overview
Principal Business Activity
XYZ Consulting India Private, Ltd. (“XYZ India”) started its operations in 2004 and performs three
different functions: Information Technology (“IT”) services, data analytics and consulting services.
Initially, XYZ India was set up as an outsourcing post to provide IT services to XYZ US with regard to
the development of the Integrated Planning Model (“IPM”) as well as the US wholesale power team.
The IPM is used extensively by XYZ entities around the globe.

Key Corporate Assets

XYZ India’s headquarters is located in New Delhi, India.

Key Employees
As of December 31, 2012, XYZ India employed XX people with almost half of the office working on the
local/regional market and half working on US-based projects.

Overview of XYZ Consulting Group, Inc.

Corporate Overview
Principal Business Activity
XYZ Consulting Group Inc (“XYZ US”) provides consulting services primarily in energy, environment
and climate change.

Key Corporate Assets

XYZ US’s principal executive office is located at XXXX.

19
 Corporate Overview

Organizational Structure
To provide an overview of the legal entities, a description of the organizational structure covering all
affiliates whose transactions may be relevant for an analysis under the arm's length principle has been
prepared. This includes foreign related parties which enter into transactions that directly or indirectly
affect these transactions.

Below is the corporate structure of the controlled group that may have an effect on the pricing of the
controlled transaction(s) under review.

The XYZ International group consists of XYZ International and its wholly-owned subsidiary, XYZ
Consulting Group, Inc (“XYZ US”).

20
Controlled Transactions
In order to identify uncontrolled transactions that are comparable to the controlled transaction(s) under
review, it is necessary to collect detailed information on each controlled transaction. Specifically, the
following data should be taken into account when making this determination:

1. A detailed description of the property or service being transferred in each controlled transaction.

2. The economic conditions surrounding each controlled transaction. This typically includes
information on the market conditions, the industry and a competitor analysis.

3. A detailed description of the contractual terms governing each controlled transaction.

4. An identification of the functions performed, risks assumed and intangibles held by each of the
parties involved in each controlled transaction. This exercise is known as a functional analysis.

This section of the report contains the above information for each controlled transaction undergoing an
arm’s length analysis in this transfer pricing report.

Controlled Transaction for the Rendering of High level IT/data

analytics services by XYZ India on behalf of XYZ US

Documentation
Renderer: XYZ Consulting India Private, Ltd
Recipient: XYZ Consulting Group, Inc.
Intercompany Transaction Date Amount (INR)
High level IT/data analytics services 31 March 2012 1

Transaction Description
Overview
XYZ India provides power and energy consulting services, model maintenance, data analytics, and IT
services on behalf of XYZ US. These services are collectively herein referred to as “high level IT/data
analytics services.

Functional Analysis Summary

Below is a summary of the functional analysis that was conducted for the controlled transaction above.

XYZ Consulting India Private,

Functions XYZ Consulting Group, Inc.
Ltd
Administrative/Executive X
Capacity Planning X X
Data analytics X
Energy and Climate Consulting X

21
 Controlled Transactions

XYZ Consulting India Private,

Functions XYZ Consulting Group, Inc.
Ltd
IT Services X
Management Information Systems X
Sales X

XYZ Consulting India Private,

Risks XYZ Consulting Group, Inc.
Ltd
Foreign Exchange Risk X
Market Risk X X

XYZ Consulting India Private,

Assets Employed XYZ Consulting Group, Inc.
Ltd
Technology X

Functional Analysis Details

Functions
Administrative/Executive
Office management and maintenance is done in-house in the respective locations where the XYZ
entities are located.

Capacity Planning
Resource & Business Management (Globally Managed): This unit is responsible for the direct
management of all PS resources and will ensure optimal utilization and allocation of staff across the
globe. This group also manages any external implementation partners that are needed to help
supplement delivery capabilities.

Consulting Management Practice (Geographically Focused): These units are responsible for customer
implementation (based on the agreed term sheet) and PS business development. Resource
requirements are generally projected forwards, based on business forecasts and current activity, to
ensure that XYZ has the right level and type available.

Data analytics
XYZ India provides data analytics for the US power market on behalf of XYZ US. XYZ India develops
and updates the Integrated Energy Outlook that is sold in the US market as a subscription product.
XYZ India delivers data analysis solutions by:

• Data collection;
• Data analysis; and
• Data visualization, reporting, and performance tracking

22
 Controlled Transactions

Energy and Climate Consulting

XYZ India provides energy and climate change consulting services to the Asian market. XYZ India
helps clients analyze, implement, and evaluate the most appropriate programs and policies utilizing
the following tools:

• Integrated Planning Model—IPM®

• PowerWorld®
• GE MAPS™
• Positive Sequence Load Flow—GE PSLF™

IT Services
XYZ India provides IT services for XYZ US. These services include, but are not limited to, updating
and upgrading XYZ’s proprietary models and technological platforms that the models are based upon.
XYZ India also focuses on the conversion of technological platforms for the IPM, Beacon, and
Comment Works.

Management Information Systems

XYZ consulting has a global financial system, based on SAP, which applies to all business operations,
a well established budgeting and forecasting process, and adequate staff resources and experience to
oversee the financial health of the business.

The Management Information System is primarily the responsibility of the group management
accounting team based in XYZ US. Management Information is presented on a group and regional
basis. All regional teams can access the management accounting system locally.

Sales
Foreign Exchange risk is borne by XYZ India. All product fee invoices are denominated in Indian local
currency; It is the responsibility of XYZ India to remit the invoices and bears the foreign exchange gain
/ loss arising from changes in the foreign exchange rate.

Risks
Market Risk
Changes in local economic, market and regulatory conditions can adversely affect the availability of
projects requiring XYZ US’s expertise. A significant portion of XYZ US’s revenues is derived from
projects with federal and local governments around the globe.

Assets Employed
Technology
XYZ India relies on innovative analytics, climate change tools and models, and proprietary methods in
order to perform environmental consulting services. All proprietary technology and processes that are
utilized are owned by XYZ US.

23
 Controlled Transactions

Service Transaction Eligibility

Introduction
This section addresses whether intra-group services have been provided by one member of a
multinational group to another. If such services have been rendered, the services must then meet the
arm’s length standard. Nearly all multinational groups must arrange for a wide range of services to its
member companies, including, but not limited to, administrative, technical, financial, and commercial
services. Such services may include management, coordination, and control functions of the group.
Intra-group arrangements for rendering services may also be linked to other intra-group transfers,
including transfers of goods and intangible property.

Controlled Services Validation (Benefits Test)

The first issue that must be addressed in analyzing whether intra-group services have been rendered
is whether such services have in fact been rendered. The OECD Guidelines set forth several elements
that a transaction must meet in order to be considered an intra-group service.

First, the Guidelines ask whether an independent enterprise in comparable circumstances would have
been willing to pay for the activity at issue if performed for it by an independent enterprise, or would
have performed the activity in-house for itself.

The Guidelines also state that certain activities do not constitute intra-group services. One such set of
activities are activities performed that relate to a membership in a corporate group even though the
group member does not itself need the activity. Such activities would be those that a group member
performs solely because of its ownership interest in one or more group members (i.e. in its capacity as
a shareholder). The regulations list the following activities as examples of activities falling into this
“shareholder activity” category:
- Costs of activities relating to the juridical structure of the parent company itself, such as meetings of
the shareholders of the parent company, issuance of shares of the parent company, and costs of the
supervisory board;

- Costs relating to reporting requirements of the parent company including consolidation of reports;

- Costs of raising funds for the acquisition of its participations.

The OECD Guidelines also state that activities that merely duplicate services already performed by
other group members or by a third party should not be considered intra-group services.

Once an activity either meets or does not fall into the categories enumerated above, an activity may be
considered an intra-group service; it is now subject to the arm's length standard applicable to both
tangible and intangible intra-group transfers.

This section also documents how the intra-group services at issue are charged or allocated among
multinational group members. While there may exist a variety of methods by which services may be
charged intra-group, the regulations state explicitly that charges for services must be supported by an
identifiable and reasonably foreseeable benefit. This report indicates whether the services have been
charged or allocated on a direct basis, an indirect basis, or on some other basis.

Based on the above guidance, the services transaction analyzed in this report is considered to not
provide a direct benefit to the recipient. Therefore, the service provider should not receive
remuneration for its activities.

24
 Controlled Transactions

Controlled Transaction for the Licensing of Software Licensing

from XYZ US to XYZ India

Documentation
Licensor: XYZ Consulting Group, Inc.
Licensee: XYZ Consulting India Private, Ltd
Intercompany Transaction Date Amount (INR)
Software Licensing 31 March 2012 1

Transaction Description
Overview
XYZ India pays a product fee to XYZ US for the licensing of software owned by XYZ US.

Property and Economic Conditions

Property Analysis
XYZ offers a variety of software products to its customers. The intellectual property associated with
this software is owned in various locations around the world (please refer to the external structure for
details of products owned by various entities in XYZ). When XYZ signs a license and services contract
with a customer, the contract may be signed with the XYZ entity that owns the IP associated with the
software or the contract may be signed by the XYZ entity located in the same jurisdiction or region as
the customer. Alternatively, for various reasons, the customer contract may be signed by an XYZ
entity that is neither the owner of the IP nor is located in the same region as the customer. Finally, the
customer may sign a license contract with one XYZ entity and sign the services contract with a
different XYZ entity.

Accordingly, there are many situations where the XYZ entity that signs the license and services
agreement with the customer is not the owner of the IP associated with the software.

In this situation, the XYZ entity that owns the IP charges a product fee to the XYZ entity that signed
the customer contract (and therefore is recognizing revenue from the customer contract). This product
fee is appropriate because it is reasonable to expect that if an XYZ entity signed a customer contract
to license and implement third party software that the third party owning that software would charge a
fee to that XYZ entity.

Specific Transaction
XYZ India does not own any Intellectual property of any XYZ products. However, it signs contracts
with customers in the European region licensing the InterconnecT product which is owned by XYZ
Consulting Group. It also may perform professional services on these contracts.

XYZ India pays product fees to XYZ Consulting Group at XX of the license fees and XX of the services
fees recognized from the customer contract as a compensation for distributing copies of the
InterconnecT product. In 2010, the net product fee is XX percent of the service and licensing revenue.

25
 Controlled Transactions

Contractual Agreements
The contractual agreement relevant to this intercompany transaction is available as a separate
document.

Functional Analysis Summary

Below is a summary of the functional analysis that was conducted for the controlled transaction above.

XYZ Consulting India Private,

Functions XYZ Consulting Group, Inc.
Ltd
Administration X X
Advertising X
Billing & Collection X
Capacity Planning X X
Commercialization X
Controllership X X
Customer Service X
Distribution Network Management X
Forecasting X
Human Resources X X
Implementation X X
Installation and After Sales X
Knowledge Management X
Legal and Regulatory Affairs X X
Legal Protection X
Licensing X
Management Information Systems X
Marketing X X
Order Administration X
Pricing X
Project Management X
Research and Development X
Sales X
Testing X
Treasury X X

XYZ Consulting India Private,

Risks XYZ Consulting Group, Inc.
Ltd
Customer Credit Risk X
Financial Performance Risk X X

26
 Controlled Transactions

XYZ Consulting India Private,

Risks XYZ Consulting Group, Inc.
Ltd
Foreign Exchange Risk X
International Risk X X
Market Risk X X
Product Liability X
Research and Development X

XYZ Consulting India Private,

Assets Employed XYZ Consulting Group, Inc.
Ltd
Customer Lists X
Key Employees X X
Software X
Trade Name/Trademark X
Valuable Process/Method X X

Functional Analysis Details

Functions
Administration
Office management and maintenance is done in-house in the respective locations where the XYZ
entities are located.

Capacity Planning
The OSS team based in XYZ India is responsible for implementation of OSS products. It consists of
two critical functions:

- Resource & Business Management (Globally Managed): This unit is responsible for the direct
management of all PS resources and will ensure optimal utilization and allocation of staff across the
globe. This group also manages any external implementation partners that are needed to help
supplement delivery capabilities.

- Consulting Management Practice (Geographically Focused): These units are responsible for
customer implementation (based on the agreed term sheet) and PS business development.

Resource requirements are generally projected forwards, based on business forecasts and current
activity, to ensure that XYZ has the right level and type available.

Commercialization
The regional finance groups are responsible for the management of day-to-day cash flows, accounts
receivable and accounts payable. Operational managers have full access to budget and financial
information to enable them to monitor the performance of the business units they control. All major
operating units also have suitably qualified and experienced finance teams who report monthly to the
executive team on the financial position.

27
 Controlled Transactions

XYZ US maintains healthy cash balances, does the vast majority of its trading in major currencies, and
does not employ unusual or high-risk financial instruments.

Forecasting
The forecasting of demand is done on a periodic basis by the regional management accounting team
in EMEA, APAC, NACA and CALA based on inputs received from the business.

Legal and Regulatory Affairs

The legal team is part of corporate services reporting to the Chief Financial Officer. There are legal
teams in all four regions reporting to the group legal advisor based in XYZ US.

The legal team is responsible to provide legal advice and support:

- To all regional operations;

- For all corporate activities;
- Litigation and disputes;
- HR matters and disputes; and
- Brand, Trade Mark and IPR protection.

Legal Protection
XYZ's IPR is generally protected by copyright rather than patent law. In the event of any dispute, XYZ
takes legal action only as a last resort, preferring to resolve issues by negotiation.

XYZ makes reasonable efforts to ensure that it does not breach the legal rights of others in developing
or implementing products. XYZ safeguards its own Intellectual Property through oversight by its legal
staff and external trademark and copyright agencies.

Management Information Systems

XYZ has a global financial system, based on SAP, which applies to all business operations, a well
established budgeting and forecasting process, and adequate staff resources and experience to
oversee the financial health of the business.

The Management Information System is primarily the responsibility of the group management
accounting team based in XYZ US. Management Information is presented on a group and regional
basis. All regional teams can access the management accounting system locally.

Marketing
XYZ has a proven and capable sales and marketing operation whose performance is regularly
monitored by the Board. Marketing activities focus primarily on supporting profitable revenue
generation through generating high quality sales leads, promoting the business in the most active
markets, and communicating product and corporate strengths.

Marketing functions for XYZ are primarily performed by XYZ Consulting Group In addition to group
marketing; there are regional marketing employees in Malaysia for the APAC region, US for North
America and the CALA region, and in the UK for the EMEA region.

28
 Controlled Transactions

Order Administration
Office management and maintenance is done in-house in the respective locations where the XYZ
entities are located.

Research and Development

XYZ US carries out most of the research and development for the InterconnecT product through its
related companies in South Africa and Sweden.

XYZ’s IPR is generally protected by copyright rather than patent law.

There are no costs sharing arrangements in place in the XYZ group.

For research and development carried on by other XYZ group entities on InterconnecT product, XYZ
US compensates them at cost plus mark-up of XX %.

Sales
Sales are primarily the responsibility of XYZ India's sales team. Prices are determined through a
negotiation process involving sales, product development and commercial and senior management.

Treasury
The treasury function is the joint responsibility of XYZ US and the regional finance team.

Risks
Customer Credit Risk
In the current transaction of intra group product fee, the credit risk is borne by XYZ India.

The credit terms to the customer are finalized by XYZ India and the cost of bad debts and decision on
recognizing bad debts is done by XYZ India, the entity which signs the contract with the customer.

All product fees payable by XYZ India to XYZ US are settled on a monthly basis. The settlement of
intercompany invoices is not dependant on receipt of sale consideration from the customer contract.

Financial Performance Risk

The OSS/BSS industry is characterized by lengthy sales cycles, which makes revenue and cash flow
difficult to predict and manage. Obviously, XYZ's revenue and cash flow is affected by varying lengths
of sales cycles. Information Technology acquisition generally and OSS/BSS in particular are
associated with purchasing complexity and significant capital commitments. Such projects are subject
to delays and re-budgeting exercises on a regular basis and XYZ is not immune from such conditions.

XYZ's financial results may fluctuate from quarter to quarter, dependent upon:

- The size and timing of significant customer projects and license and service fees;
- Delays or even cancellations of significant projects;
- Project dependent changes in operating expenses;
- Restructuring;
- FOREX fluctuations; and
- Other economic fluctuations and even political conditions.

29
 Controlled Transactions

Foreign Exchange Risk

Foreign Exchange risk is borne by XYZ US. All product fee invoices are denominated in XYZ India's
local currency, Indian Rupee.

It is the responsibility of XYZ India to remit the invoices in Indian Rupees and XYZ US bears the
foreign exchange gain / loss arising from changes in the foreign exchange rate.

International Risk
XYZ is a highly de-centralized business, with development centers in Australia, South Africa, USA and
support centres in USA, Canada, Brazil, Malaysia, India, Ireland and UK. As such XYZ is affected by
risks associated with conducting business internationally.

XYZ obtains a mix of revenue from customers in all regions and maintains offices and staff in many
countries.

Conducting business on an international basis exposes XYZ to the following additional risks:

- Need to localize products add extra cost and risk to projects;

- Legal and cultural differences in the conduct of business;

- Difficulties in staffing and managing foreign operations;

- Fluctuations in payment cycles and difficulty in collecting accounts receivable and withholding taxes
that limit the repatriation of earnings;

- Requirements to comply with varied legal and regulatory regimes across jurisdictions; and

- Immigration regulations that limit our ability to deploy our own staff as well as risks associated with
political instability in certain countries.

Market Risk
XYZ is a globally active company, and as such XYZ is exposed to global economic and market
conditions and associated risks, particularly where such risk specifically impacts the
telecommunications industry. XYZ has already initiated steps to diversify its industry focus, although
such initiatives are in an early stage of development.

Among other things that could have an adverse effect on XYZ’s business (and upon customers'
business) are:

- Continuing consolidation among the Communications Service Provider (CSP) community, thus
reducing the potential market opportunity for XYZ;

- Emergence of new competitors across all our product lines; and

- Changes in regulatory requirements for the provision of telecommunications services.

30
 Controlled Transactions

A conventional reaction among CSPs, during periods of market uncertainty, is to exert more strict
control over operating expenses (OPEX) and capital investment (CAPEX) budgets resulting in a
slowdown in customer purchasing decisions, as well as increasing price pressures, which may affect
XYZ’s revenue and margin.

Obviously adverse market conditions in the future could have a negative impact on XYZ's business by
reducing the number of new contracts it can sign and the size of initial spending commitments, as well
as decreasing the level of discretionary spending under contracts with existing customers. In addition,
a reoccurrence of the slowdown in the buying decisions of communications providers could extend
sales cycle period and limit its ability to forecast flow of new contracts.

If XYZ fails to adapt to changing market conditions and cannot compete successfully with existing or
new competitors, its business could be harmed.

Product Liability
XYZ US customer projects. All products undergo rigorous testing before deployment, and are subject
to a programme of continual improvement. Product quality metrics are a key Board measure.

Assets Employed
Customer Lists
XYZ India holds the customer list for customers in the APAC region.

Trade Name/Trademark
XYZ US is a product-based business. XYZ US uses sophisticated tools and technologies to ensure
that its products offer high performance and robustness. XYZ US intellectual property rights ("IPR")
are primarily protected by software copyright law, rather than patents.

XYZ US makes an effort to ensure that it does not breach the legal rights of others in developing or
implementing products. XYZ US safeguards its own Intellectual Property through oversight by its legal
staff and external trademark and copyright agencies.

XYZ US software products, integrated solutions and service methodology have been developed over
many years. But XYZ US, as with many other vendors, is increasingly under pressure from potential
IPR infringement threats and from less scrupulous competitors. As the industry consolidates, some of
the 3rd party products may become the IPR of direct competitors, thus associating additional risk with
such relationships.

Valuable Process/Method
XYZ, through its subsidiaries, owns the intellectual property for the following products:

- InterconnecT: Operations support software;

- IntermediatE (XYZ Mediation): Operations support software;
- Singl.eView (XYZ Convergent Billing): Business support software;
- Dynamic Charging Platform (DCP): Business support software; and
- EUR and others: Managed Services.

XYZ only uses technologies and products which are considered to be "industry standard", in the sense
of being widely used and accepted within the industry, and appropriate in terms of quality and

31
 Controlled Transactions

performance for the business critical applications it supports. XYZ has particular strengths in supplying
products and services that address the global industry trend known as convergence. This can mean
convergence of both networks and services, the net result is that customers are increasingly offered a
wider range of more complex, higher-value products (such as broadband internet access, music and
other content downloads, or mobile TV) through a range of different methods, including fixed lines,
cable, cellular wireless and wireless LANs. XYZ has a product set which inherently addresses
converged services with proven effectiveness and we are seeing increasing success in these markets.

32
Method Evaluation
The OECD Guidelines recommend a number of transfer pricing methods (the recommended methods)
that, when applied correctly to a tangible, intangible or service transaction, result in an arm's length
price or allocation. The taxing authorities will rely on these methods to determine if the terms and
conditions of a taxpayer's cross-border transactions with non-arm's length parties are consistent with
the arm's length principle.

These methods are divided into two groups, with the first being the traditional transactional methods
(i.e. the comparable uncontrolled price (CUP) method; the resale price (RP) method; and the cost plus
(CP) method). When one of these methodologies is employed, the arm’s length character of a
controlled transaction under review is established by comparing the unit price, gross margin, or royalty
realized in connection with the controlled transaction to the same financial measure associated with an
uncontrolled transaction (that is comparable to the controlled transaction).

The second groups of methods discussed by the OECD Guidelines are the transactional profit
methods (i.e., the transactional net margin method (TNMM), which is a variation of the popular
comparable profits method (CPM) used in the United States, and the transactional profit split (PS)
method). In general, when a profit based methodology is employed, the profitability of one of the
parties to a controlled transaction is compared to the profitability of other similar, unrelated legal
entities that have not engaged in related party transfers. If the profitability of the legal entity involved in
the controlled transaction is similar to that of the unrelated legal entities, then the assumption can be
made that the controlled transaction was conducted at arm’s length. If not, then this can be an
indicator that the controlled transaction was priced incorrectly.

When determining which testing methodology is most reliable, the two most important factors
taxpayers must consider are:

1) The degree of comparability between the controlled transaction (and taxpayer) and any
uncontrolled transactions or comparables.

2) The completeness and accuracy of the underlying data used in the analysis, the reliability of the
assumptions used in connection with the method, and the sensitivity of the results to deficiencies in
the data used or the assumptions made (depending on the methodology employed).

In certain circumstances, one should also consider whether the results of an analysis using a
particular method are consistent with the results of an analysis using another method.

The following transaction has been analyzed to determine whether the price charged for the
transaction is equivalent to the price that would have been charged between unrelated parties. The
paragraphs below summarize this transaction, the testing methodology selected as the most reliable
measure of the arm's length result (best method), the testing methodologies not employed by the
taxpayer in meeting the arm's length standard, which includes a listing of the methods not used and an
explanation of why they were not selected as a testing methodology, and whether or not the
documentation supports the contention that the transaction was conducted at arm’s length.

Method Evaluation for the Rendering of High level IT/data analytics

services by XYZ India on behalf of XYZ US
Renderer: XYZ Consulting India Private, Ltd
Recipient: XYZ Consulting Group, Inc.
Intercompany Transaction Date Amount (INR)
High level IT/data analytics services 31 March 2012 1

33
 Method Evaluation

Methods Applied
Most Appropriate Method
Transactional Net Margin Method
The Transactional Net Margin Method (“TNMM”) has been selected as the most appropriate method
based on the availability of reliable data and because comparable uncontrolled transactions with which
to apply the transactional methods could not be identified reliably. XYZ-India has been selected as the
tested party on the basis that it provides high level IT/data analytics services, making its profitability
dependent on the fees it receives for these services. Independent companies with similar functions to
those of the tested party were reliably identified. The profitability of the tested party was then
compared to that of the independent companies, effectively measuring the arm’s-length nature of the
intercompany transaction.

Methods Not Applied

Comparable Uncontrolled Price
The Comparable Uncontrolled Price (“CUP”) method evaluates whether the amount charged in a
controlled transaction is arm’s length by reference to the amount charged in a comparable
uncontrolled transaction. The CUP method is ordinarily used where the controlled transactions are
either identical to or have a high degree of similarity to the uncontrolled transactions. Because of the
nature and complexity of the high level IT/data analytics services provided by XYZ-India, it is not
possible to identify independent service providers that would serve as comparables. The CUP method
was not applied as the best method because comparable uncontrolled transactions involving the
provision of very similar services under similar terms and circumstances could not be identified
reliably.

Profit Split
The Profit Split ("PS") method is used in cases involving the co-development of a non-routine
intangible asset, where the “residual” profits attributable to a non-routine intangible are split between
two parties. As there is no co-development of any intangible asset between XYZ-India and XYZ-US,
the PS method would not be the best method to analyze the intercompany transaction.

Method Evaluation for the Licensing of Software Licensing from

XYZ US to XYZ India
Licensor: XYZ Consulting Group, Inc.
Licensee: XYZ Consulting India Private, Ltd
Intercompany Transaction Date Amount (INR)
Software Licensing 31 March 2012 1

34
 Method Evaluation

Methods Applied
Most Appropriate Method
Comparable Uncontrolled Price
Based on the facts and circumstances and on the availability of reliable, comparable data, the CUP
method was selected as the most appropriate method to establish arm's-length results with respect to
the controlled transaction. XYZ India pays a product fee for software distribution to XYZ US. Several
agreements between unrelated third parties were reviewed and deemed comparable to the controlled
transaction in this analysis.

Methods Not Applied

Cost Plus
The Cost Plus ("CP") method is typically used as a transactional analysis in the comparison of
controlled and uncontrolled transactions involving the manufacture, assembly and production of
tangible goods within the same product category. The comparability of the uncontrolled transactions
relies on the similarity of functions performed, risks assumed and intangibles held. The gross margin
of the manufacturer involved in the controlled transaction is compared with the gross margins of
manufacturers in the comparable uncontrolled transactions. The CP method can also be applied to
analyze service transactions by comparing the gross margin of the service provider involved in the
controlled transaction to the gross margin of the service providers in comparable uncontrolled
transactions. Given the availability of CUTs, the CP method was not selected as the best method to
test the transaction under the review.

Profit Split
The Profit Split ("PS") method determines the division of profits that independent enterprises would
expect to realize under circumstances similar to the transaction under review. The PS method
calculates the profit (either total or residual) from the controlled transactions and splits those profits
based on the contribution of each entity and is therefore consistent with what would have occurred at
arm’s length. The contribution of each entity is determined by performing a functional analysis and
valued, if possible, by reference to reliable external market data. The PS method has not been applied
because there was no co-development of intangibles between the entities.

Resale Price
The Resale Price ("RSP") method as a transaction based economic analysis evaluates whether the
amount charged in a controlled transaction is arm's-length by references to the gross margin realized
in comparable uncontrolled transactions. The RSP method was not applied as a transaction based
analysis because the controlled transaction involved services as well as the transfer of products.

Transactional Net Margin Method

The Transactional Net Margin Method ("TNMM") was not applied because comparable uncontrolled
trademark license and distribution agreements with which to apply a transactional method were
identified reliably.

35
Economic Analysis for the Rendering of High level IT/data
analytics services by XYZ India on behalf of XYZ US
Renderer: XYZ Consulting India Private, Ltd
Recipient: XYZ Consulting Group, Inc.
Intercompany Transaction Date Amount (INR)
High level IT/data analytics services 31 March 2012 1

Once all the information on the controlled transaction(s) has been collected, it is necessary to conduct
the economic analysis that will determine whether it has been conducted at arm’s length.

Profit Based Economic Analysis

This section of the report will detail the economic analysis undertaken in conjunction with any
transactional profit based methodologies that were employed in the course of testing the arm’s length
character of the controlled transaction(s) under review.

There are two general approaches that can be used when employing a transactional profit based
methodology. The most common approach is to compare the profitability of one of the controlled
taxpayers, or one of its business segments, involved in the controlled transaction(s) to the profitability
of comparable uncontrolled taxpayers. A more sophisticated approach, which should only be used in
specific circumstances, is to split the profit associated with the controlled transaction among the
parties that have engaged in the transaction using various allocation methods. This section will
describe the traditional profit based approach (i.e. the TNMM) and then apply it where appropriate to
the controlled transaction(s) under review in this report. If the second profit based approach (i.e. the
RPS) was applied in connection with the transaction(s) under review, this analysis will be detailed in
the section entitled "Profit Split Analysis."

Tested Party Identification (XYZ Consulting India Private, Ltd)

When applying the TNMM, the first step is to select the tested party. In general, the tested party is
considered to be either one of the entities involved in the transaction or the most narrowly identified
business activity in which one of the entities engages that includes the controlled transaction. The
tested party should not hold any valuable, non-routine intangibles, and should be the least complex
entity in the relationship. In addition, it should also be possible to construct financial statements that
correspond directly to the controlled transaction(s) under review.

Based on these criteria the following tested party was identified:

XYZ Consulting India Private, Ltd
The analysis described below will be conducted for this tested party.

Tested Party Information

First, it is important to gather general information such as a description of its structure, an overall
description of its business and a review of its competitors, customers, and the industry in which it
operates. In addition, it is necessary to identify the major functions the tested party performs, the risks
it assumes, and the specialized assets it holds. This information is detailed below.

36
 Economic Analysis for the Rendering of High level IT/data analytics services by XYZ India on behalf of XYZ US

An income statement and balance sheet that correspond directly to the activities of the current tested
party have been constructed below. The relevant profit level indicators (PLIs) are applied to this data
and compared to the corresponding profit level indicators applied to the corresponding data of the
comparable companies from which the arm's-length range is derived.

XYZ Consulting India Private, Ltd

Income Statement

Description 2011 2010 2009 Average

Net Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Operating Income
Interest Expense
R and D Expense
Advertising Expense

Fiscal Year End: March 31, 2012 Currency: INR

Balance Sheet

Description 2011 2010 2009 Average

Avg Total Assets
Avg Operating Assets
Avg Net Payables
Avg Net Receivables
Avg Net Inventory
Avg Cash
Avg Cash And Equivalent
Avg Net PPE
Avg Invested Capital

Fiscal Year End: March 31, 2012 Currency: INR

37
 Economic Analysis for the Rendering of High level IT/data analytics services by XYZ India on behalf of XYZ US

Comparable Uncontrolled Taxpayer Identification

To determine the arm’s length price of the current tested party’s controlled transaction(s), it is
necessary to compare the tested party’s profitability to the profitability of comparable uncontrolled
taxpayers. Based on an in-depth search and evaluation process, a group of companies has been
identified as comparable to the tested party. The financial data associated with each of the taxpayers
listed below will be used to construct the arm’s length range. Below is an overview of the results of this
search. For a detailed description of the identification and evaluation process, see the section of the
report entitled "Appendix: Comparable Taxpayers."

Search of Thomson Reuters Fundamentals, published June 2013 by Thomson Reuters

Potentially Comparable Taxpayers Total: 248

Criteria Set Potentially Comparable Taxpayers: 248

Search Criteria
7371 - Serv: Computer Programming Services or
7374 - Serv: Data Processing & Preparation or
7379 - Serv: Computer Related Services, nec or
8111 - Serv: Legal Services or
8711 - Serv: Engineering Services or
Primary US SIC: 8732 - Serv: Commercial Nonphysical Research or
8733 - Serv: Noncommercial Research Organizations or
8741 - Serv: Management Services or
8742 - Serv: Management Consulting Services or
8748 - Serv: Business Consulting, nec or
8999 - Serv: Services, nec
And
Inclusion Criteria

Domiciled in: India

Criteria Set Potentially Comparable Taxpayers: 4

Search Criteria
8741 - Serv: Management Services or
Primary US SIC: 8742 - Serv: Management Consulting Services or
8748 - Serv: Business Consulting, nec
And
Inclusion Criteria

Domiciled in: India

And

38
 Economic Analysis for the Rendering of High level IT/data analytics services by XYZ India on behalf of XYZ US

Fiscal Year End

March 2012
Exclusion :

Search of Thomson Reuters European Comparables, published June 2013 by

OneSource (former InfoUSA)
Potentially Comparable Taxpayers Total: 0

Total Pool of Potentially Comparable Taxpayers: 248

Bulk Rejections Summary

Bulk Rejections Total: 134

Qualitative Rejections Count

Average operating income is less than or equal to 0 for the years of interest 18
Net Sales missing for 2 or more years 57
Total Qualitative Rejections 75

Quantitative Rejections Count

Average Net Inventory/Total Net Sales is greater than or equal to 0.05 59
Total Quantitative Rejections 59

First Review Rejections Summary

First Review Rejections Total: 103

First Review Rejection Reasons Count

Primarily provides engineering services 18
Primarily provides financial services 19
Primarily provides maintenance services 1
Primarily provides security services 11
Primarily provides software development services 41
Primarily provides telecommunications services 13
Total First Review Rejections 103

Second Review Rejections Summary

Second Review Rejections Total: 3

Blue Star Infotech Ltd.

Rejection Reason

39
 Economic Analysis for the Rendering of High level IT/data analytics services by XYZ India on behalf of XYZ US

Primarily provides software development services

Upon further research, Blue Star Infotech Limited's computer software development segment comprised of XX percent of FYE
2011 revenues.

Source: Blue Star Infotech Limited's FYE 2012 annual report.

Silverline Technologies Limited

Rejection Reason
Primarily provides software development services
Upon further research, direct costs of software development attributed to XX percent of Silverline Technologies Limited's FYE
2011 expenses.

Source: Silverline Technologies Limited's FYE 2012 annual report.

Tata Elxsi Limited

Rejection Reason
Is a controlled entity
Source: http://www.tataelxsi.com/company/about-us.html

A part of the $100 billion Tata group, Tata Elxsi addresses the communications, consumer products, defence, healthcare, media
& entertainment, semiconductor and transportation sectors.

Comparable Taxpayers

Total Accepted After Search and Evaluation: 8

Below is a list of the comparable taxpayers accepted upon final review. For a detailed description,
refer to the section of the report entitled "Appendix: Comparable Taxpayers."

40
 Economic Analysis for the Rendering of High level IT/data analytics services by XYZ India on behalf of XYZ US

3i Infotech Ltd

Acropetal Technologies Ltd

Allied Digital Services Ltd.

ASM Technologies Ltd

GSS Infotech Ltd

Hexaware Technologies Limited

Info Drive Software Ltd

NIIT Technologies Ltd.

Perform the Arm’s Length Analysis

Once comparable uncontrolled taxpayers have been identified, it is necessary to compare their
profitability to the current tested party’s profitability. This comparison analysis is conducted in three
steps. First, it is necessary to select the measure of profitability that will be used in the comparison
(the profit level indicators (PLIs)). A single PLI is often used in the application of the TNMM. However,
multiple PLIs can be used, as each may provide a different evaluation. Furthermore, different methods
may be employed to confirm and support the evaluation of others.

The decision to use a particular PLI depends on a number of factors, including: (1) the nature of the
tested party’s activities; (2) the reliability of available data with respect to uncontrolled taxpayers; and
(3) the extent to which the PLI is likely to produce a reliable measure of tested party income (assuming
the controlled transaction(s) had been conducted at arm’s length). Below are the PLIs that have been
applied to the financial data of the current tested party and each comparable uncontrolled taxpayer.

Arm’s Length Range

An arm’s length range is a set of values calculated using the selected Profit Level Indicator (“PLI”) and
financial data of each comparable uncontrolled taxpayer. The results of the range calculation for this
search are displayed below.

Unadjusted Arm’s Length Range

Profit Level Indicator (PLI): Net Cost Plus

Average Type: Weighted Average
Quartile Calculation Method: Interquartile Range
Comparable Taxpayer 2011 2010 2009 Average

3i Infotech Ltd 0.0893 0.2080 0.2087 0.1761

Acropetal Technologies Ltd 0.2284 0.3562 0.4293 0.3062

Allied Digital Services Ltd. 0.0402 0.1098 0.2203 0.1222

ASM Technologies Ltd 0.1244 0.0992 0.0807 0.1063

GSS Infotech Ltd -0.0409 0.1862 0.1944 0.1245

Hexaware Technologies Limited 0.1951 0.0672 0.1964 0.1543

41
 Economic Analysis for the Rendering of High level IT/data analytics services by XYZ India on behalf of XYZ US

Info Drive Software Ltd 0.0077 0.0972 0.0747 0.0629

NIIT Technologies Ltd. 0.1839 0.2140 0.2121 0.2006

2011 2010 2009 Average

Minimum: -0.0409 0.0672 0.0747 0.0629

Lower Quartile: 0.0239 0.0982 0.1376 0.1142

Median: 0.1069 0.1480 0.2025 0.1394

Upper Quartile: 0.1895 0.2110 0.2162 0.1884

Maximum: 0.2284 0.3562 0.4293 0.3062

2011 2010 2009 Average

Tested Party PLI/Ratio:

Outcome (Full Range): In In In In

Outcome (Interquartile Range): In In In In

For FYE 2012, the range of net cost plus ratios established by the comparable companies has a
minimum of XX percent, a lower quartile of XX percent, an upper quartile of XX percent and a
maximum of XX percent, with a median of XX percent.

42
Economic Analysis for the Licensing of Software Licensing
from XYZ US to XYZ India
Licensor: XYZ Consulting Group, Inc.
Licensee: XYZ Consulting India Private, Ltd
Intercompany Transaction Date Amount (INR)
Software Licensing 31 March 2012 1

Once all the information on the controlled transaction(s) has been collected, it is necessary to conduct
the economic analysis that will determine whether it has been conducted at arm’s length.

Transaction Based Economic Analysis

In the process of researching the facts of the controlled transaction(s) under review, a number of
similar transactions between uncontrolled entities were identified. In order to determine whether any of
these transactions can serve as benchmarks for the purposes of a transaction-based analysis, it was
necessary to conduct a thorough comparison of these transactions’ facts and circumstances against
those of the controlled transaction in question. This section of the report documents the comparison
process as well as the final analysis.

The financial data associated with the uncontrolled transactions that meet the necessary comparability
standards was used to construct the arm's length range. Depending on the methodology employed,
the points of the range were derived from a single financial parameter that is an integral part of the
transaction. Specifically, if a Comparable Uncontrolled Price (CUP) method was employed, the range
is comprised of the unit price of each comparable uncontrolled transaction (e.g. product unit price,
service hourly rate, royalty rate, interest rate, etc). If a Resale Price (RP) or a Cost Plus (CP) method
is employed, the range is constructed using the gross margin or a cost plus markup associated with
each comparable uncontrolled transaction. In all cases, if the financial metric for the controlled
transaction under review falls within the constructed range, then the transaction is considered to be
conducted at arm's length.

Comparable Uncontrolled Price Analysis

This section of the report will describe each of the major components of the selected transaction
based analysis.

Controlled Transaction
Below is the controlled transaction to be analyzed as part of the current transaction based analysis.
Licensor: XYZ Consulting Group, Inc.
Licensee: XYZ Consulting India Private, Ltd
Intercompany Transaction Amount Charged Currency Date Rate
Software Licensing 1 INR 31 March 2012 1

Uncontrolled Transaction(s)
If a traditional transaction methodology has been applied to determine whether a controlled
transaction has been conducted at arm's length, the controlled transaction(s) under review is

43
 Economic Analysis for the Licensing of Software Licensing from XYZ US to XYZ India

compared against any potentially comparable uncontrolled transactions. This section of the report
contains detailed information on each of these uncontrolled transactions.

Uncontrolled transactions that are potentially comparable to the controlled transaction(s) under review
are either categorized as “internal” or “external” transactions. Internal transactions occur whenever
one of the taxpayers involved in the controlled transaction, or a related affiliate, engage in a similar
transaction with an unrelated entity. External transactions occur between two companies which are
completely unrelated to either of the parties engaged in the controlled transaction or any of their
affiliates. Internal transactions are preferable as opposed to external transactions since it is likely that
the information regarding the internal transactions will be more reliable.

Once the uncontrolled transactions that are potentially comparable to the controlled transaction(s)
under review are identified, it is necessary to collect detailed information on each one. Each
uncontrolled transaction should be documented in the same manner as the controlled transaction(s),
so they can be compared against one another. Specifically, the following information needs to be
gathered:

1. The property or service to which the transaction relates.

2. The terms and conditions of the transaction and their relationship, if any, to the terms and conditions
of each other transaction entered into between the persons or partnerships involved in the transaction.

3. The identity of the persons or partnerships involved in the transaction or arrangement and their
relationship at the time the transaction or arrangement was entered into.

4. The functions performed, the property used or contributed, and the risks assumed by the persons or
partnerships involved in the transaction. Paragraphs 1.20 through 1.27 of the OECD Guidelines
describe the functional analysis process. In addition, Paragraphs 5.23 and 5.24 of the OECD
Guidelines give an overview of the documentation required to support such an analysis.

5. The data and methods considered and the analysis performed to determine the transfer prices or
the allocation of profits or losses or contributions to costs for the transaction. This includes a
description of the comparable transactions considered and of those used in applying the pricing
method, an assessment of the degree of comparability of such transactions with the taxpayer's
transactions, and the description of any adjustments made to enhance the degree of comparability.
Where the taxpayer considers more than one method, this also includes the analysis performed using
the other methods as well as the analysis that led to the selection of the chosen method.

6. The assumptions, strategies, and policies, if any, that influenced the determination of the transfer
prices or the allocations of profits or losses or contributions to costs, as the case may be, for the
transaction. This includes all the factors that materially affect the determination of the transfer prices,
such as market penetration strategies or any economic assumptions that were relied on to determine
the transfer prices.

Below are the uncontrolled transactions that have been identified as potentially comparable to the
controlled transaction under review. The summary table is followed by the details of each of these
transactions.

44
Accepted Uncontrolled Transactions Summary
Below is a table that identifies and summarizes the uncontrolled transactions that were deemed comparable to the controlled transaction in this
analysis. For a matrix of rejected uncontrolled transactions, please refer to the Appendix of this report.

ID# Licensor Licensee Property Amount Charged Currency Rate Transaction Date

International
1 Multi Soft Inc. Business Machines Software 1.00 INR XX % 31 March 2012
Corporation
Network-1 Security FalconStor Software
2 Software 1.00 INR XX % 31 March 2012
Solutions Inc. Inc.
Orchestral IVP Technology
3 Software Product 1.00 INR XX % 31 March 2012
Corporation Corporation

4 NetIQ Corporation Ixia Software product 1.00 INR XX % 31 March 2012

VidRev TTA Technologies

5 Software Products 1.00 INR XX % 31 March 2012
Technologies Inc. Limited

6 Vertel Corporation Prismtech Limited Software Product 1.00 INR XX % 31 March 2012

Kuni Research
AltaVista Multimedia Email
7 International 1.00 INR XX % 31 March 2012
Technology Inc. and Web Software
Corporation
QueryObject
Internet Query
8 Systems Licensed Software 1.00 INR XX % 31 March 2012
Object Corporation
Corporation
Lotus Development
9 NetObjects Inc. Software Products 1.00 INR XX % 31 March 2012
Corporation

45
Accepted Uncontrolled Transactions Descriptions

ID# Description

1 Multi Soft Inc licenses software to International Business Machines Corporation ("IBM").
Network-1 Security Solutions Inc. ("Network-1") licenses software to FalconStor Software Inc.
2
("FalconStor").
3 Orchestral Corporation licenses software to IVP Technology Corporation.
4 NetIQ Corporation licenses software to Ixia.
5 TTA Technologies Limited ("TTA") licenses software to VidRev Technologies Inc.
6 Vertel Corporation licenses software to Prismtech Limited.
AltaVista Technology Inc. ("AVT Inc.") licenses software to Kuni Research International
7
Corporation.
QueryObject Systems Corporation ("QOS") licenses software to Internet Query Object
8
Corporation ("IQO").
9 Lotus Development Corporation licenses software to NetObjects Inc.

Comparability Analysis
A three-step process was undertaken in order to assess the comparability between the controlled and
each of the uncontrolled transactions.

First, the similarity of the property transferred or service rendered as well as of the economic
conditions surrounding both controlled and uncontrolled transactions was evaluated. The purpose of
this comparison is to identify any material differences and to determine whether adjustments are
possible.

Second, where necessary, adjustments were made for the material differences identified in the
previous step.

Finally, based on the information from the comparability analysis, it was determined whether the
uncontrolled transaction is similar enough to serve as a comparable for the purposes of a transaction-
based analysis.

Analysis for Uncontrolled Transactions

The first step in the comparability determination process is to compare the property and the economic
conditions surrounding the uncontrolled transaction(s) to the controlled transaction(s). The comparison
process has been documented below with any material differences between the transactions being
highlighted. In addition, for each major area of comparison, the overall similarity of the two
transactions has been rated.

46
Analysis for Uncontrolled Transaction

ID# Source Destination Property Rate

International Business
1 Multi Soft Inc. Software XX %
Machines Corporation

Comparability Results
Below is a summary of the comparability ratings that were derived from the comparison process.
Based on these ratings, the uncontrolled transaction(s) has been accepted.

Characteristic Comparability Index

Property/Service Similar
Functional Analysis Similar
Contractual Terms Similar
Economic Conditions Similar

Comparability Discussion
Property

Property Analysis

Multi Soft Inc. entered into software license agreement, providing IBM with the right to market and
distributes Multi Soft Inc.'s products. The company's products include tools for the development of
client-server applications using the mainframe as the enterprise server. Multi Soft Inc. licenses
software to IBM for a fee of up to 11 percent of net sales.

Identified Product Differences

The controlled transaction between XYZ India and XYZ US involves the distribution of
telecommunication software. The uncontrolled license agreement between IBM and Multi Soft Inc. also
involves the distribution of software. The distributing activities incorporate store processes, procedures
and business systems established and licensed by Multi Soft Inc., which are very similar to XYZ US
operations of XYZ India. The similarities in the activities performed at the type of establishment make
the two agreements comparable in nature.

Comparability Index for Property

In summary, the controlled and uncontrolled transactions were found to be similar.

Contractual Terms

General

Participants

Licensee: IBM

47
Licensee Business: Office, computing, and accounting machinery

Licensor: Multi Soft Inc.

Licensor Business: Prepackaged software

Definitions

Licensed Property

In October 1993, the Company entered into a software licensing agreement and other ancillary
agreements with IBM providing IBM with certain exclusive marketing rights for the Company's flagship
product, WCL (runtime version) with IBM IMS Extensions. This IBM extended version of Multi Soft's
WCL is named IMS Client ServerTM for Windows. Specifically modified for use with IBM mainframe
systems, IMS Client ServerTM for Windows provides remote presentation support for IMS. The Multi
Soft product line consists of tools for the development of client-server applications using the
mainframe as the Enterprise Server. There are four key elements to the real world development,
delivery and production maintenance of these applications and all are supported by the Multi Soft
product line. These include screen-based access to mainframe data and processes; message-based
access to mainframe data and processes; integration of screen-based and message-based access to
the mainframe in the same application; and control and distribution management.

Compensation Detail

IBM agrees to pay or accrue to Multi Soft a minimum fee for each copy of the Licensed Work for which
IBM receives revenue of an amount equal to 22 percent of an amount equal to 50 percent of a
Product's United States list price (i.e. 11 percent of such Product's U.S. list price). This minimum fee
shall also apply in any cases where IBM packages a product with other IBM and/or non-IBM products
and offers them at a single price to customers, where the portion of the single price attributable to the
product is not readily ascertainable.

Analysis for Uncontrolled Transaction

ID# Source Destination Property Rate

Network-1 Security Solutions
2 FalconStor Software Inc. Software XX %
Inc.

Comparability Results
Below is a summary of the comparability ratings that were derived from the comparison process.
Based on these ratings, the uncontrolled transaction(s) has been accepted.

Characteristic Comparability Index

Property/Service Similar
Functional Analysis Similar
Contractual Terms Similar
Economic Conditions Similar

48
Comparability Discussion
Property

Property Analysis

Network-1 grants license to FalconStor to market, distribute, resell, and sublicense its products.
Network-1 licenses software to FalconStor for a fee of up to XX percent of net sales.

Identified Product Differences

The controlled transaction between XYZ India and XYZ US involves the distribution of
telecommunication software. The uncontrolled license agreement between FalconStor and Network-1
also involves the distribution of software. The distributing activities incorporate procedures and
business systems established and licensed by Network-1, which are very similar to XYZ US
operations of XYZ India. The similarities in the activities performed at the type of establishment make
the two agreements comparable in nature.

Comparability Index for Property

In summary, the controlled and uncontrolled transactions were found to be similar.

Contractual Terms

General

Participants

Licensee: Falconstor Software Inc.

Licensee Business: Prepackaged software

Licensor: Network-1 Security Solutions Inc.

Licensor Business: Prepackaged software

Definitions

Licensed Property

This license and distribution agreement is made and entered into this 2nd day of October, 2001. The
company hereby grants to the licensee a worldwide, non-exclusive license to: (i) market, distribute,
resell, and sublicense the licensed product to resellers as a separate product or together with any
FalconStor product under FalconStor trademark(s) or under the trademark(s) utilized for the licensed
product by Network-1, expressly excluding OEM Transactions; (ii) use the licensed product for testing,
demonstration, training, promotional and evaluation purposes by its personnel and resellers; (iii)
market, distribute and sublicense the OEM Product under FalconStor trademark(s) or such other
trademarks as FalconStor may authorize in OEM transactions, expressly excluding Network-1
trademark(s); (iv) reproduce the licensed product and OEM Product to give effect to the express terms
and provisions hereof. The company presently owns six patents covering various telecommunications
and data networking technologies. The company's patent portfolio consist of the following patents:

49
U.S. Patent No. 6,577,631: communication switching module for the transmission and control of audio,
video, and computer data over a single network fabric; U.S. Patent No. 6,574,242: method for the
transmission and control of audio, video, and computer data over a single network fabric; U.S. Patent
No. 6,570,890: method for the transmission and control of audio, video, and computer data over a
single network fabric using Ethernet packets; U.S. Patent. No. 6,539,011: method for initializing and
allocating bandwidth in a permanent virtual connection for the transmission and control of audio,
video, and computer data over a single network fabric; U.S. Patent No. 6,218,930: Apparatus and
method for remotely powering access equipment over a 10/100 switched Ethernet network; and U.S.
Patent No. 6,215,789: local area network for the transmission and control of audio, video, and
computer data.

Compensation Detail

Upon execution of this agreement, FalconStor shall pay to Network-1 a non-refundable advance
against fees of $500,000 (the non-refundable advance). FalconStor shall pay Network-1 a fee equal
to: (i) 15 percent of Network-1's list price on all sales or licenses granted by FalconStor in and to the
Licensed Product, excluding OEM Transactions; or (ii) 20 percent of its net receipts from any OEM
Transaction.

Analysis for Uncontrolled Transaction

ID# Source Destination Property Rate

IVP Technology
3 Orchestral Corporation Software Product XX %
Corporation

Comparability Results
Below is a summary of the comparability ratings that were derived from the comparison process.
Based on these ratings, the uncontrolled transaction(s) has been accepted.

Characteristic Comparability Index

Property/Service Similar
Functional Analysis Similar
Contractual Terms Similar
Economic Conditions Similar

Comparability Discussion
Property

Property Analysis

Orchestral Corporation grants the right to IVP Technology Corporation to distribute and market its
Power Audit software product. The software provides a tool that allows personnel to collect a variety of
different data, have that data verified when entered, and then transmit that data on a wireless basis via
the internet to a central server where management will have immediate access to the data. Orchestral
Corporation licenses software to IVP Technology Corporation for a fee of XX % of net sales.

50
Identified Product Differences

The controlled transaction between XYZ India and XYZ US involves the distribution of
telecommunication software. The uncontrolled license agreement between IVP Technology
Corporation and Orchestral Corporation also involves the distribution of software. The distributing
activities incorporate procedures and business systems established and licensed by Orchestral
Corporation, which are very similar to XYZ US operations of XYZ India. The similarities in the activities
performed at the type of establishment make the two agreements comparable in nature.

Comparability Index for Property

In summary, the controlled and uncontrolled transactions were found to be similar.

Contractual Terms

General

Participants

Licensee: IVP Technology Corporation

Licensee Business: Prepackaged software

Licensor: Orchestral Corporation

Definitions

Licensed Property

The licensee entered into a software distributing agreement with an unrelated company (1999) that
was later amended (2000), granting it an exclusive right to distribute a software product known as
"Power Audit" throughout the United States of America, the European Economic Community, and
handheld personal computers that provides a platform for real-time, remote data capture and market
survey purposes. PowerAudit is a field automation and enterprise integration tool that allows field
personnel to collect a variety of different forms of data, have that data verified when entered, and then
transmit that data on a wireless basis via the internet to a central server where management will have
immediate access to the data. PowerAudit runs on handheld personal computers ("HPCs" or
"handheld devices") employing Microsoft's Windows CE operating system that allows the software to
interface with other Microsoft platforms, the most widely used operating systems in the world.

Compensation Detail

Payments of XX % on the first $500,000 of sales XX % percent on sales between XX % and

$1,000,000 and five percent on sales over $1,000,000. This was changed in 2000 to the fee for sales
over $1,000,000 from XX % to XX %.

Analysis for Uncontrolled Transaction

ID# Source Destination Property Rate

4 NetIQ Corporation Ixia Software product XX %

51
Comparability Results
Below is a summary of the comparability ratings that were derived from the comparison process.
Based on these ratings, the uncontrolled transaction(s) has been accepted.

Characteristic Comparability Index

Property/Service Similar
Functional Analysis Similar
Contractual Terms Similar
Economic Conditions Similar

Comparability Discussion
Property

Property Analysis

NetIQ Corporation grants exclusive rights to Ixia to distribute Chariot software product. Chariot
software product is designed to measure and predict end-to-end performance of networked
applications. NetIQ licenses software to Ixia for a fee of XX % of net sales.

Identified Product Differences

The controlled transaction between XYZ India and XYZ USinvolves the distribution of
telecommunication software. The uncontrolled license agreement between Ixia and NetIQ Corporation
also involves the distribution of software. The distributing activities incorporate procedures and
business systems established and licensed by NetIQ, which are very similar to XYZ US operations of
XYZ India. The similarities in the activities performed at the type of establishment make the two
agreements comparable in nature.

Comparability Index for Property

In summary, the controlled and uncontrolled transactions were found to be similar.

Contractual Terms

General

Participants

Licensee: Ixia
Licensee Business: Instruments to measure electricity

Licensor: NetIQ Corporation

Licensor Business: Prepackaged software

52
Definitions

Licensed Property

In July 2003, licensee was granted exclusive distribution rights to Chariot products in the United States
and Canada through December 31, 2004, as well as a perpetual license to the source code for the
Chariot software products to develop and distribute derivative products. In addition to the license
rights, licensee was granted an option to purchase assets associated with the Chariot products.
Chariot software products are designed to measure and predict end-to-end performance of networked
applications. The detailed performance data collected by Chariot enables users to optimize network
performance, eliminate unnecessary upgrades and determine when network loads will necessitate
new equipment. Using simulated real-world application loads, Chariot generates application traffic to
evaluate the effect changes will have on existing applications. Both parties are U.S. corporations.
Rights to use following trademarks or brand names included: "Chariot," "Qcheck", and "AppScanner."

Compensation Detail

Ixia shall pay to NetIQ a one-time fee in the amount of $17,500,000 (the "Source Asset License Fee")
in cash on the Effective Date by wire transfer of immediately available funds to an account of NetIQ
designated to Ixia. As payment in full for all copies of any distribution products and for the right to
provide distribution product maintenance, Ixia shall pay to NetIQ fees as follows: (i) for each calendar
quarter up through December 31, 2004, an amount equal to 50 percent of the first $1,000,000 of
adjusted gross revenues of Ixia for such calendar quarter; (ii) an amount equal to 40 percent of the
adjusted gross revenues of Ixia for such calendar quarter in excess of $1,000,000 up to $2,000,000;
and (iii) an amount equal to XX % of the adjusted gross revenues of Ixia for such calendar quarter in
excess of Two Million Dollars.

Analysis for Uncontrolled Transaction

ID# Source Destination Property Rate

TTA Technologies
5 VidRev Technologies Inc. Software Products XX %
Limited

Comparability Results
Below is a summary of the comparability ratings that were derived from the comparison process.
Based on these ratings, the uncontrolled transaction(s) has been accepted.

Characteristic Comparability Index

Property/Service Similar
Functional Analysis Similar
Contractual Terms Similar
Economic Conditions Similar

53
Comparability Discussion
Property

Property Analysis

TTA grants an exclusive right to VidRev to further distribute software product. TTA is in the business of
operating software used for video conferencing, video telephony, security and compression and
transmission of electronic files. VidRev licenses software to TTA for a fee of 18 percent of net sales.

Identified Product Differences

The controlled transaction between XYZ India and XYZ US involves the distribution of
telecommunication software. The uncontrolled license agreement between VidRev Technologies
Limited and TTA also involves the distribution of software. The distributing activities incorporate store
processes, procedures and business systems established and licensed by TTA, which are very similar
to XYZ US operations of XYZ India. The similarities in the activities performed at the type of
establishment make the two agreements comparable in nature.

Comparability Index for Property

In summary, the controlled and uncontrolled transactions were found to be similar.

Contractual Terms

General

Participants

Licensee: VidRev Technologies Inc.

Licensor: TTA Technologies Limited

Definitions

Licensed Property

This agreement made and entered into on this 21st day of June, 2004. TTA hereby grants to VidRev
the exclusive right to distribute and further sublicense the distribution and use of the licensed software
to third party distributors and end users subject to the terms and conditions hereof, provided that, all
promotion, marketing, distribution and use shall be limited geographically to the United States of
America, excluding its territories or possessions. TTA is in the business of licensing and operating
software used for video conferencing, video telephony, security and compression and transmission of
electronic files, in connection with the World Wide Web, and has been authorized to distribute the
products.

Compensation Detail

VidRev shall pay TTA an initial fee of $1,000 upon the execution of this agreement. For each
sublicense granted by VidRev or Third Party Distributor(s) to an End User, VidRev shall pay a fee to

54
TTA of 18 percent of the license or use fee for each product sublicensed. Such payment must be paid
in full no later than the 15th of the following calendar month.

Analysis for Uncontrolled Transaction

ID# Source Destination Property Rate

6 Vertel Corporation Prismtech Limited Software Product XX %

Comparability Results
Below is a summary of the comparability ratings that were derived from the comparison process.
Based on these ratings, the uncontrolled transaction(s) has been accepted.

Characteristic Comparability Index

Property/Service Similar
Functional Analysis Similar
Contractual Terms Similar
Economic Conditions Similar

Comparability Discussion
Property

Property Analysis

Vertel Corporation licenses to Prismtech the right to sell software product. The software product is the
proprietary software for developing telecom systems and applications for telecom hardware. Vertel
Corporation licenses software to Prismtech for a fee of XX % of net sales.

Identified Product Differences

The controlled transaction between XYZ India and XYZ US involves the distribution of
telecommunication software. The uncontrolled license agreement between Prismtech Limited and
Vertel Corporation also involves the distribution of software. The distributing activities incorporate store
processes, procedures and business systems established and licensed by Vertel Corporation, which
are very similar to XYZ US operations of XYZ India. The similarities in the activities performed at the
type of establishment make the two agreements comparable in nature.

Comparability Index for Property

In summary, the controlled and uncontrolled transactions were found to be similar.

55
Contractual Terms

General

Participants

Licensee: Prismtech Limited

Licensor: Vertel Corporation

Licensor Business: Prepackaged software

Definitions

Licensed Property

This asset purchase agreement is made as of this 27th day of November, 2002. An English company
is purchasing a software product referred to as e*ORB (embedded and real-time object request
broker) from a US company. The agreement provides that the licensee (purchaser) shall pay fees on
sales from all current contracts held by licensor. Sale is the licensor's CORBA business unit. e*ORB,
which is proprietary software for developing telecom systems and applications for telecom hardware,
based on an industry standard called Common Object Request Broker Architecture (CORBA).
e*ORBis a carrier-grade embeddable CORBA ORB (C++, C, and Java) targeted at the telecom
equipment market. Unlike other CORBA products on the market, e*ORB focuses on delivering high
performance and high scalability, while requiring minimal memory. e*ORB supports a set of features
applicable to targeted customers. e*ORB has application within high-end network elements such as
optical switches and wireless base stations, as well as mobile devices such as a personal digital
assistant (PDA) and wireless phones. Additionally, e*ORB is appropriate for and sold to a number of
other embedded markets such as defense and transportation primarily for communication and
management applications. e*ORB conforms to the minimum CORBA specification set by the Object
Management Group (OMG) and supports product enhancements that make it more adaptable to the
telecom market.

Compensation Detail

A fee in the amount of 50 percent of all software license sales for Product actually received by
Purchaser under a Current Contract. A "Current Contract" is any customer contract for the product
executed prior to the Closing Date including, without limitation, the customer agreement with General
Dynamics. A fee in the amount of 10 percent of all software license sales for Product actually received
by Purchaser under Other Contracts.

Analysis for Uncontrolled Transaction

ID# Source Destination Property Rate

Kuni Research
Multimedia Email and Web
7 AltaVista Technology Inc. International XX %
Software
Corporation

56
Comparability Results
Below is a summary of the comparability ratings that were derived from the comparison process.
Based on these ratings, the uncontrolled transaction(s) has been accepted.

Characteristic Comparability Index

Property/Service Similar
Functional Analysis Similar
Contractual Terms Similar
Economic Conditions Similar

Comparability Discussion
Property

Property Analysis

AVT Inc. provides an exclusive right to Kuni Research International Corporation to distribute software.
AVT Inc.'s software include ME-Mail engine (Multimedia E-mail) which allows any ME-Mail message to
be sent directly to an end user or sent to the Magic Bit web server where it will instantly be converted
into series of web pages and posted "live" on the internet. AVT Inc. licenses software to Kuni
Research International Corporation for a fee of XX % of net sales.

Identified Product Differences

The controlled transaction between XYZ India and XYZ US involves the distribution of
telecommunication software. The uncontrolled license agreement between Kuni Research
International Corporation and AVT Inc. also involves the distribution of software. The distributing
activities incorporate store processes, procedures and business systems established and licensed by
AVT Inc., which are very similar to XYZ US operations of XYZ India. The similarities in the activities
performed at the type of establishment make the two agreements comparable in nature.

Comparability Index for Property

In summary, the controlled and uncontrolled transactions were found to be similar.

Contractual Terms

General

Participants

Licensee: Kuni Researh Internation Corporation

Licensor: AVT Inc.

Licensor Business: Prepackaged software

57
Definitions

Licensed Property

This distribution agreement is made and entered into in March, 1998. The company grants to a
Japanese company an exclusive right to AVT multimedia email and web authoring software and
services for the purposes of enabling Licensee to distribute the AVT Products. AVT's technological
core is the ME-Mail engine (i.e., Multimedia E-mail) which allows any MEMail message to be sent
directly to an end user or sent to the Magic Bit web server where it will instantly be converted into a
series of web pages and posted "live" on the Internet. Magic Bit provides a multimedia email tool to
send personalized Valentine cards complete with pictures, audio and text on-line throughout the World
Wide Web.

Compensation Detail

Kuni shall pay AVT a fee of XX % of its Net Revenue derived from its exercise of the license rights set
forth.

Analysis for Uncontrolled Transaction

ID# Source Destination Property Rate

QueryObject Systems Internet Query Object
8 Licensed Software XX %
Corporation Corporation

Comparability Results
Below is a summary of the comparability ratings that were derived from the comparison process.
Based on these ratings, the uncontrolled transaction(s) has been accepted.

Characteristic Comparability Index

Property/Service Similar
Functional Analysis Similar
Contractual Terms Similar
Economic Conditions Similar

Comparability Discussion
Property

Property Analysis

QOS grants an exclusive license to distribute copies of the software on the worldwide basis. QOS
licenses software to IQO for a fee of XX % of net sales.

Identified Product Differences

The controlled transaction between XYZ India and XYZ US involves the distribution of
telecommunication software. The uncontrolled license agreement between IQO and QOS also

58
involves the distribution of software. The distributing activities incorporate store processes, procedures
and business systems established and licensed by QOS, which are very similar to XYZ US operations
of XYZ India. The similarities in the activities performed at the type of establishment make the two
agreements comparable in nature.

Comparability Index for Property

In summary, the controlled and uncontrolled transactions were found to be similar.

Contractual Terms

General

Participants

Licensee: Internet Query Object Corporation

Licensor: Query Object Systems Corporation

Licensor Business: Prepackaged software

Definitions

Licensed Property

This software license agreement was entered into on March 16, 2000. The company hereby grants to
IQO: an exclusive license for the license term to distribute copies of software on a world-wide basis to
organizations and or individuals whose primary purpose is electronic commerce over the internet, to
electronic commerce branches, divisions or subsidiaries of companies with this primary purpose, and
to software developers, manufacturers or systems integrators whose primary purpose is to provide
management assistance to the electronic commerce industry, for use in or integration with applications
related to the management and analysis of data derived from Internet commerce and internet
management applications, and applications related to the publication and/or distribution and/or access
of such analytical data over the Internet.

Compensation Detail

For calendar years 2000 and 2001, IQO shall pay to QOS a percentage fee as follows: 20 percent on
the first 1,000,000 dollars of adjusted net sales, 18 percent on adjusted net sales between 1,000,001
dollars and 2,000,000 dollars, 15 percent on adjusted net sales between 2,000,001 dollars and
5,000,000 dollars, and 12 percent on adjusted net sales over 5,000,000 dollars. QOS and IQO will use
their best efforts to renegotiate these rates for calendar years 2002 and beyond. IQO shall pay to QOS
maintenance in an amount equal to 25 percent of all IQO maintenance revenue derived from the
licenses granted herein.

Analysis for Uncontrolled Transaction

ID# Source Destination Property Rate

Lotus Development
9 NetObjects Inc. Software Products XX %
Corporation

59
Comparability Results
Below is a summary of the comparability ratings that were derived from the comparison process.
Based on these ratings, the uncontrolled transaction(s) has been accepted.

Characteristic Comparability Index

Property/Service Similar
Functional Analysis Similar
Contractual Terms Similar
Economic Conditions Similar

Comparability Discussion
Property

Property Analysis

Lotus Development Corporation grants the right to NeObjects Inc. to distribute "Lotus Product" which
is Lotus FastSite. Lotus FastSite provides a quick and easy way for non-technical users to contribute
information to an internet, intranet, or extranet site. Lotus Development licenses software to
NetObjects Inc. for a fee of 25 percent of net sales.

Identified Product Differences

The controlled transaction between XYZ India and XYZ US involves the distribution of
telecommunication software. The uncontrolled license agreement between NetObjects Inc. and Lotus
Development Corporation also involves the distribution of software. The distributing activities
incorporate store processes, procedures and business systems established and licensed by Lotus
Development Corporation, which are very similar to XYZ US operations of XYZ India. The similarities
in the activities performed at the type of establishment make the two agreements comparable in
nature.

Comparability Index for Property

In summary, the controlled and uncontrolled transactions were found to be similar.

Contractual Terms

General

Participants

Licensee: NetObjects Inc.

Licensee Business: Prepackaged software

Licensor: Lotus Development Corporation

Licensor Business: Prepackaged software

60
Definitions

Licensed Property

In this distribution agreement, dated April 21, 1999, the company grants a worldwide, nonexclusive,
non-transferable right and license, subject to the terms and conditions hereof, to copy, modify,
manufacture and distribute the Lotus Product; "Lotus Product" shall mean Lotus FastSite for NAS,
version 2.0x (including the version branded as "NetObjects Authoring Server Connector for Business
Documents, featuring Lotus FastSite"). Created with the end user, rather than the webmaster in mind,
Lotus FastSite provides a quick and easy way for nontechnical users to contribute information to an
Internet, intranet or extranet site. FastSite enables users to easily convert groups of files, of different
file formats, into Web pages.

Compensation Detail

NetObjects will pay Lotus a fee for each copy of the Lotus Product distributed or sold by NetObjects,
including maintenance releases and upgrades. Such fee will be equal to 25 percent of ASP for the first
5,000 units distributed, and 20 percent of ASP for units in excess of 5,000 distributed during each 12-
month term of this agreement, provided that in no event shall the fee be less than 15 dollars per copy
and that there will be no minimum fees for distributions by NetObjects of updates, upgrades and error
correction copies of the Lotus Product made available free of charge only to those users who have
previously purchased a licensed copy of the Lotus Product. For purposes of this Agreement, "ASP" or
"Actual Selling Price" shall mean the total revenue collected directly or indirectly by NetObjects, net of
actual returns (not to exceed XX % annually, as determined after the end of each one year period), for
sales of the Lotus Product. FastSite then instantly builds a complete site with a consistent look,
hyperlinks and navigation buttons.

Arm’s Length Range Construction

Once a pool of comparable uncontrolled transactions was established, which are, after any necessary
adjustments, sufficiently comparable and reliable, it was necessary to construct an arm’s length range.
An arm’s length range is a set of values that is derived from the unit prices, royalty rates, gross
margins, or cost plus ratios of the comparable uncontrolled transactions. The same financial items
associated with the controlled transaction(s) under review are compared against this set of values. If
the controlled transaction value falls within the constructed range, then it is presumed to have been
conducted at arm’s length. Finally, the regulations allow taxpayers to statistically adjust this range by
adding and subtracting values to increase the reliability of the analysis.

Below are the uncontrolled transactions that have been accepted. The financial values associated with
the accepted transactions were used to construct the arm's length range.

ID# Licensor Licensee Property Rate

International Business XX %
1 Multi Soft Inc. Software
Machines Corporation
Network-1 Security Solutions XX %
2 FalconStor Software Inc. Software
Inc.
3 Orchestral Corporation IVP Technology Corporation Software Product XX %
4 NetIQ Corporation Ixia Software product XX %
5 VidRev Technologies Inc. TTA Technologies Limited Software Products XX %
6 Vertel Corporation Prismtech Limited Software Product XX %

61
ID# Licensor Licensee Property Rate
Kuni Research International Multimedia Email and XX %
7 AltaVista Technology Inc.
Corporation Web Software
QueryObject Systems Internet Query Object XX %
8 Licensed Software
Corporation Corporation
9 Lotus Development Corporation NetObjects Inc. Software Products XX %

Rate
Minimum XX %
Uncontrolled Transfer
Price
Median XX %
Maximum XX %
Uncontrolled Transfer
Price

Controlled
XX
Transaction
Outcome (Full
In Range
Range)

The range of rates for the set of comparable unrelated trademark licensing agreements is between XX
percent and XX percent, with a median of XX percent. During the fiscal year 2012, XYZ India paid a
net product fee of XX percent of its revenue to XYZ US. Therefore, it can be concluded that the
product fee paid by XYZ India to XYZ US is in accordance with the arm's-length standard.

62
Appendices

63
 Appendices

Appendix: Legal Entity Financial Information

XYZ Consulting India Private, Ltd

Income Statement

Description 2011 2010 2009 Average

Net Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Operating Income
Interest Expense
R and D Expense
Advertising Expense

Fiscal Year End: March 31, 2012 Currency: INR

Balance Sheet

Description 2011 2010 2009 Average

Avg Total Assets
Avg Operating Assets
Avg Net Payables
Avg Net Receivables
Avg Net Inventory
Avg Cash
Avg Cash And Equivalent
Avg Net PPE
Avg Invested Capital

Fiscal Year End: March 31, 2012 Currency: INR

64
 Appendices

Appendix: Applicable Methods

The OECD Guidelines recommend a number of transfer pricing methods (the recommended methods)
that, when applied correctly to a tangible, intangible or service transaction, result in an arm's length
price or allocation. The taxing authorities will rely on these methods to determine if the terms and
conditions of a taxpayer's cross-border transactions with non-arm's length parties are consistent with
the arm's length principle.

These methods are divided into two groups, with the first being the traditional transactional methods
(i.e. the comparable uncontrolled price (CUP) method; the resale price (RP) method; and the cost plus
(CP) method). When one of these methodologies is employed, the arm’s length character of a
controlled transaction under review is established by comparing the unit price, gross margin, or royalty
realized in connection with the controlled transaction to the same financial measure associated with an
uncontrolled transaction (that is comparable to the controlled transaction).

The second groups of methods discussed by the OECD Guidelines are the transactional profit
methods (i.e., the transactional net margin method (TNMM), which is a variation of the popular
comparable profits method (CPM) used in the United States, and the transactional profit split (PS)
method). In general, when a profit based methodology is employed, the profitability of one of the
parties to a controlled transaction is compared to the profitability of other similar, unrelated legal
entities that have not engaged in related party transfers. If the profitability of the legal entity involved in
the controlled transaction is similar to that of the unrelated legal entities, then the assumption can be
made that the controlled transaction was conducted at arm’s length. If not, then this can be an
indicator that the controlled transaction was priced incorrectly.

Specific Methodologies
The OECD Guidelines recommend a number of specific transfer pricing methods that can be used to
evaluate whether transactions between or among members of the controlled group satisfy the arm’s
length standard: the CUP method, the RP method, the CP method, the TNMM, and the PS method.
Each method will be described in detail below.

Comparable Uncontrolled Price (CUP)

According to the OECD Guidelines, the comparable uncontrolled price (CUP) method provides the
best evidence of an arm's length price. When employing a CUP, the unit price charged for the tangible
property transferred in a controlled transaction is compared to the unit price charged for the same (or
very similar) tangible property transferred in a comparable uncontrolled transaction.

There are two possible sources of a CUP. First, the taxpayer may sell the particular product in the
same quantities, under the same terms, and in the same markets to parties with whom it deals at
arm's length (an internal comparable). Second, other taxpayers may sell the same product in the same
quantities, under the same terms, and in the same markets, to arm's length parties (an exact
comparable uncontrolled price).

However, care must be taken in using an internal comparable as the basis for a transfer price between
non-arm's length parties. For example, incidental sales of a product to third parties may not be
indicative of an arm's length price for the product.

Transactions may serve as comparables despite the existence of differences between those
transactions and non-arm's length transactions; provided the differences can be measured on a
reasonable basis and an appropriate adjustment can be made to eliminate the effects of those
differences.

65
 Appendices

When determining whether controlled and uncontrolled transactions are comparable, the OECD
Guidelines state that regard should be had to the effect on price of broader business functions other
than just product comparability. One should examine the property or services transferred, the functions
performed, the contractual terms, the economic conditions, and the risks assumed. The Guidelines
also state that every effort should be made to adjust the data so that it may be used appropriately in a
CUP. The relative reliability of the CUP is affected by the degree of accuracy with which adjustments
can be made to achieve comparability.

Resale Price Method (RP)

The resale price (RP) method is similar in concept to the cost plus (CP) method, in that it relies on
comparisons of gross margins. Under the RP, the selling price to third parties is known, and an
expected return for the functions performed by the seller is established by reference to third party
sales by the seller, or by reference to the return earned by persons performing the same or similar
functions and selling the same or similar goods as the seller, to arm's length parties.

In other words, the RP compares the gross profit margin realized by the distributor (in connection with
the controlled transaction) to the gross margin realized by it or a similar distributor in a comparable
uncontrolled transaction. The OECD Guidelines state that for purposes of the RP, an uncontrolled
transaction is comparable to a controlled transaction if one of two conditions is met: (1) none of the
differences (if any) between the transactions being compared or between the entities undertaking
those transactions could materially affect the resale price margin in the open market; or (2) reasonably
accurate adjustments can be made to eliminate the material effects of such differences. In making
comparisons for purposes of the RP, fewer adjustments are normally needed to account for product
differences than under the CUP, because minor product differences are less likely to have as material
an effect on profit margins as they do on price.

Since a distributor’s gross profit provides compensation for the resale functions that it performs in
relation to the product(s) under review, comparability under the RP is particularly dependent on the
similarity of functions performed, the risks assumed, and the contractual terms of the controlled and
comparable uncontrolled transactions (or adjustments must be made to account for the effects of any
such differences).

Cost Plus Method (CP+)

Under the cost plus (CP) method, the costs incurred for supplying a product or services are known. An
arm's length mark-up on the costs is determined either from the taxpayer's sales of the product or a
similar product to third parties in comparable transactions, or from the mark-up realized by unrelated
taxpayers in comparable transactions with third parties.

In other words, the CP compares the gross profit margin realized by the manufacturer in connection
with the controlled transaction to the gross profit margins realized by similar uncontrolled
manufacturers when they transfer similar property to similar uncontrolled distributors (in comparable
uncontrolled transactions).

The OECD Guidelines state that an uncontrolled transaction is comparable to a controlled transaction
for purposes of the CP analysis if one of two conditions is met: (1) none of the differences (if any)
between the transactions being compared or between the entities undertaking those transactions
materially affect the cost plus mark-up in the open market; or (2) reasonably accurate adjustments can
be made to eliminate the material effects of such differences. In making comparisons for purposes of
the CP, fewer adjustments are normally needed to account for product differences than under the
CUP, because minor product differences are less likely to have as material an effect on profit margins
as they do on price.

66
 Appendices

It is important to properly determine cost under the CP. The more comparable the products and/or
functions, the more likely it is that the CP will produce an appropriate estimate of an arm's length
result. The principles of this paragraph apply equally to the rendering of services. Where cost is not
accurately determined, both the mark-up (which is a percentage of cost) and the transfer price (which
is the total of the cost and the mark-up) will be misstated. Cost must be calculated in accordance with
accounting principles that are generally accepted in the country at issue and that are appropriate to
the industry, whether or not some other calculation of cost is used in the relevant foreign country.

It is also important to ensure that the cost base to which the mark-up is applied is comparable to the
cost base of the third party transactions which serve as comparables. For example, as noted in
Paragraph 2.37 of the OECD Guidelines, it may be necessary to make an adjustment to cost where
one person leases its business assets while another owns its business assets.

Since a manufacturer's gross profit provides compensation for the production functions that it performs
in relation to the product(s) under review, comparability under the CP is particularly dependent on the
similarity of functions performed, the risks assumed, and the contractual terms of the controlled and
comparable uncontrolled transactions (or adjustments must be made to account for the effects of any
such differences).

Transactional Net Margin Method (TNMM)

The transactional net margin method (TNMM) can be used to test prices charged for tangible property,
intangible property and as compensation for related party services. The TNMM compares the net profit
margin of a taxpayer arising from a non-arm's length transaction with the net profit margins realized by
arm's length parties from similar transactions.

Although the TNMM compares the profitability of controlled transactions to comparable uncontrolled
transactions, in practice this rarely occurs since it is difficult to determine the profitability of the
comparable uncontrolled transactions. Instead, practitioners compare the profitability of controlled
taxpayers or one of its business units to the profitability of comparable uncontrolled taxpayers. The
controlled transaction participant whose profitability is being evaluated is known as the "tested party."
In most cases, the tested party will be the least complex of the controlled taxpayers, and will be the
party whose profit attributable to the controlled transaction(s) can be verified using the most reliable
data requiring the fewest adjustments and for which reliable data regarding uncontrolled comparables
can be located. Where the profitability of the tested party falls within the arm’s length range
established by the profitability of the comparable uncontrolled taxpayers, then all of the tested party’s
controlled transactions are deemed to be at arm’s length.

As the TNMM relies on a comparison of net margins, a high standard of comparability must be met in
order for the TNMM to produce a reasonable estimate of an arm's length result. It should be noted that
several factors other than transfer prices may account for differences in net margins. Where
differences between the taxpayer's situation and that of one or more comparable entities exists and
can be ascertained, appropriate adjustments must be made in order to ensure a high standard of
comparability. The failure to account for these differences or to make satisfactory adjustments may
preclude the method from producing a reasonable estimate of an arm's length result.

In some cases, reliable adjustments can be made for differences between the situations of
comparable persons and the taxpayer, such as differences in financing strategies or in the cost of
financing. Other differences which directly affect net margins may not lend themselves to simple or
reliable adjustments (e.g. differences in the age and productivity of plant and equipment, management
abilities or philosophies, and the business experience of the respective entities). It should be noted
that industry profit data drawn from broad sources rarely satisfies the standards of comparability
required to implement the TNMM.

Since the TNMM does not take into account the actual controlled transaction(s) undertaken by the
tested party, the product-specific data necessary to apply the CUP, RP, or CP methods is not

67
 Appendices

required. Instead, the financial data associated with the tested party's controlled transactions are used.
To determine profitability for the tested party and comparable uncontrolled taxpayers, one should
employ profit level indicators (PLIs) or net profit margin indicators such as return on assets or
operating income to sales. Where the tested party is concerned, the PLI employed should be applied
solely to the financial data that corresponds to the controlled transaction(s) under review.

Comparability of the controlled and uncontrolled taxpayers is particularly dependent upon the
resources employed and risks assumed. It is also important to consider the functions performed by the
tested party and the comparable uncontrolled taxpayers. As such, it is important to perform a
functional analysis of the controlled taxpayer and the comparable taxpayers.

Lastly, it should be noted that the TNMM is typically applied to only one of the members of a
multinational group. Because the TNMM fails to consider the relative contributions of all the members
to the profits of the group, it may produce absurd results. This could occur where attributing a level of
profit to the one member leaves the other members of the group with unrealistic shares of the total
profits of the group.

Profit Split Method (PS)

The profit split (PS) method may be applied where the operations of two or more non-arm's length
parties are highly integrated, making it very difficult to evaluate their transactions on an individual basis
and, therefore, precluding the application of the traditional transaction methods.

Under the PS, the first step is to determine the total profit earned by the parties from their integrated
operations. It may, in some cases, be appropriate to split the gross profit. This profit is then split
between the parties based on the relative value of their contributions to the non-arm's length
transactions, considering the functions performed, the assets used, and the risks assumed by each
related party.

The combined operating profit must be derived from the most narrowly identifiable business activity of
the controlled taxpayers that includes the controlled transactions (for which data is available). The
relative value of each related entity's contribution to the success of the venture must be determined in
a manner that reflects the functions performed, the risks assumed, and the resources employed by
each partner.

In all cases where the PS is applied, a detailed analysis of the functions performed by the parties to
the transactions should be completed and well documented. It is not acceptable to merely provide
each party with the same return on its respective assets.

Where the return on the functions performed by the parties can be established from comparable data,
the residual PS is generally preferable over other types of PS analysis. The residual PS allocates the
combined operating profit of the taxpayers involved in the controlled transaction(s) under review using
a two-step process. A residual PS is performed in two stages following the determination of the total
profit to be split. The first stage is the allocation of a return to each party for the readily identifiable
functions (e.g. manufacturing or distribution), based on standard returns established from comparable
data. The returns to these functions will, therefore, not account for the return attributable to intangible
property used by the parties. In the second stage, the return attributable to the intangible property is
established by allocating the residual profit (or loss) between the parties. This is based on an analysis
of the facts and circumstances indicating how this residual would have been divided between arm's
length parties.

68
 Appendices

Appendix: Comparable Taxpayers (High Level IT/Data

Analytics Service)
To perform a transactional profit based analysis, it is necessary to identify potential comparable
uncontrolled taxpayers. The profitability of these entities will be compared against the profitability of
the legal entity (or a segment of a legal entity) that has engaged in the controlled transaction(s) under
review. The selected legal entity or segment is known as the tested party. One of the biggest
challenges in using a transactional profit method is to identify comparable taxpayers for which
sufficient information is available to form a reliable comparability evaluation.

A search for comparable taxpayers is completed in four steps. In the first step, commercial or
proprietary databases containing company information disclosed in public filings are searched for
potentially comparable taxpayers. These queries often result in a sample containing hundreds of
companies, which must be reduced to a manageable size before the companies can be evaluated
individually. Therefore, the second step is to perform bulk rejections, through which clearly dissimilar
taxpayers are removed from the sample by filtering. In the third step, information associated with each
of the remaining comparable taxpayers is reviewed at a high-level, followed by another removal of
dissimilar taxpayers from the sample. In the fourth and final step, the business activities of the
remaining taxpayers in the sample are compared in detail to those of the business unit being
benchmarked.

The search detailed below has been used to benchmark the tested party selected in the following
controlled transaction(s).

• The Rendering of High level IT/data analytics services by XYZ India on behalf of XYZ
US

Comparable Taxpayer Search and Evaluation

The following comparable data search and evaluation process has been conducted using the following
database(s):

• Thomson Reuters Fundamentals, published June 2013 by Thomson Reuters

• Thomson Reuters European Comparables, published June 2013 by OneSource (former

InfoUSA)

Step One: Commercial Database Search

In order to find companies to be included in a set of comparables, it is necessary to search commercial
or proprietary databases that contain company information that has been disclosed in public filings.
The tables below detail the search criteria that were employed and the number of potentially
comparable companies that were identified.

Occasionally, specific comparable taxpayers can be identified using alternate data sources. The total
number of comparable taxpayers from alternate data sources appears beneath the tables below.

69
 Appendices

Search of Thomson Reuters Fundamentals, published June 2013 by Thomson Reuters

Potentially Comparable Taxpayers Total: 248

Criteria Set Potentially Comparable Taxpayers: 248

Search Criteria
7371 - Serv: Computer Programming Services or
7374 - Serv: Data Processing & Preparation or
7379 - Serv: Computer Related Services, nec or
8111 - Serv: Legal Services or
8711 - Serv: Engineering Services or
Primary US SIC: 8732 - Serv: Commercial Nonphysical Research or
8733 - Serv: Noncommercial Research Organizations or
8741 - Serv: Management Services or
8742 - Serv: Management Consulting Services or
8748 - Serv: Business Consulting, nec or
8999 - Serv: Services, nec
And
Inclusion Criteria

Domiciled in: India

Criteria Set Potentially Comparable Taxpayers: 4

Search Criteria
8741 - Serv: Management Services or
Primary US SIC: 8742 - Serv: Management Consulting Services or
8748 - Serv: Business Consulting, nec
And
Inclusion Criteria

Domiciled in: India

And

Fiscal Year End

March 2012
Exclusion :

Search of Thomson Reuters European Comparables, published June 2013 by

OneSource (former InfoUSA)
Potentially Comparable Taxpayers Total: 0

70
 Appendices

Total Pool of Potentially Comparable Taxpayers: 248

Step Two: Bulk Rejection of Uncontrolled Taxpayers

The database search such as the one conducted in step one establishes a broad sample of
companies that are potentially comparable. By performing bulk rejections, groups of taxpayers that do
not meet minimum defined comparability criteria can be removed from this sample. Specifically, two
types of bulk rejections can be applied. The first type, qualitative rejections, removes taxpayers for
whom critical financial data is not available. The second type, quantitative rejections, removes
taxpayers from the sample based upon filters such as gross sales, assets and number of employees.

Below is a summary of the bulk rejections that were applied to the sample of comparable taxpayer
data established in step one. See the rejection matrix of this report titled “Potential Comparable
Taxpayers Eliminated by Bulk Rejections” for a detailed listing of the taxpayers that were bulk rejected
and their corresponding rejection reasons.
Bulk Rejections Summary
Bulk Rejections Total: 134

Qualitative Rejections Count

Average operating income is less than or equal to 0 for the years of interest 18
Net Sales missing for 2 or more years 57
Total Qualitative Rejections 75

Quantitative Rejections Count

Average Net Inventory/Total Net Sales is greater than or equal to 0.05 59
Total Quantitative Rejections 59

Step Three: First Review Rejection of Uncontrolled Taxpayers

The purpose of the first review process is to eliminate taxpayers from the data set that are not
engaged in business activities comparable to those being benchmarked. In order to remove these
taxpayers from consideration, the available information about each potential comparable taxpayer
must be reviewed.

Below is a summary of the reasons for which potential comparable taxpayers were rejected during the
first review. The number rejected for each reason is also provided. Note that though it is possible for a
taxpayer to meet multiple rejection criteria, a taxpayer can be rejected only once. See the rejection
matrix of this report titled “Potential Comparable Taxpayers Eliminated in First Review” for a detailed
listing of the taxpayers that were rejected and their corresponding rejection reasons.
First Review Rejections Summary
First Review Rejections Total: 103

First Review Rejection Reasons Count

Primarily provides engineering services 18
Primarily provides financial services 19

71
 Appendices

First Review Rejection Reasons Count

Primarily provides maintenance services 1
Primarily provides security services 11
Primarily provides software development services 41
Primarily provides telecommunications services 13
Total First Review Rejections 103

Step Four: Second Review Rejection of Uncontrolled Taxpayers

The taxpayers that remain after bulk rejections and the first comparability review are most likely to be
comparable. To make the final determination of each taxpayer's comparability, an in-depth evaluation
of the taxpayer's activities must be conducted using detailed data from public filings, annual reports
and industry analysis reports.

Below is a summary of the companies that were rejected as a result of this detailed evaluation and the
rejection reason for each.
Second Review Rejections Summary
Second Review Rejections Total: 3

Blue Star InfoTech Ltd.

Blue Star Infotech Limited (BSIL) is engaged in the development of computer software. The Company provides application
services, product engineering package implementation, mobility computing, cloud computing and testing services. During the
fiscal year ended March 31, 2012, the Company launched a number of solutions and accelerators, which include Business
Intelligence solutions and tools built on statistical analysis software (SAS) and QlikView for the Pharma, Manufacturing, Travel &
Hospitality, and Utilities industries; online booking engine and supplier connectivity frameworks for Travel & Hospitality; ERP for
HR-intensive organisations on the Microsoft Dynamics AX product; mobility solutions for the Apple iOS and Google Android
platforms; and barcoding solutions for inventory and warehouse management. On June 22, 2012, the Company’s wholly owned
subsidiary, Blue Star Infotech (Singapore) Pte. Ltd, acquired Infostack Solutions Pte Ltd.
Rejection Reason
Primarily provides software development services
Upon further research, Blue Star Infotech Limited's computer software development segment comprised of XX % percent of
FYE 2012 revenues.

Source: Blue Star Infotech Limited's FYE 2012 annual report.

Silverline Technologies Limited

Silverline Technologies Limited (Silverline) is engaged in consulting and information technology (IT) services. The Company
focuses on providing business consulting, systems integration application development and product engineering services. It has
a development center at Seepz, Mumbai. The development center has a facility in Mumbai (SEEPZ) to deliver its software
development services. This facility operates as an export unit within the SEEPZ premises at Mumbai. It offers a range of
information technology services comprising software development, system solutions, application software system maintenance
software to its customers across the industry. Its subsidiaries include Millennium Care Inc.and Innovative BPO Ltd.
Rejection Reason
Primarily provides software development services
Upon further research, direct costs of software development attributed to XX % percent of Silverline Technologies Limited's FYE
2012 expenses.

Source: Silverline Technologies Limited's FYE 2012 annual report.

72
 Appendices

Tata Elxsi Limited

Tata Elxsi Limited provides product design and engineering services to the consumer electronics, communications and
transportation industries and systems integration and support services for enterprise customers. The Company operates in four
divisions: embedded product design provides technology consulting, new product development, system integration, and testing
services for product companies, service providers, and aspiring start-ups; industrial design division includes consumer insight,
branding, product design, packaging design, transportation design, visual design, design engineering, and manufacturing
support; visual computing labs offers animation, visual effects, and three dimensional stereoscopic content for feature films,
episodic television and television, commercials, and the systems integration division implements and integrates complete
systems and solutions for computing, broadcast, virtual reality, storage and disaster recovery.
Rejection Reason
Is a controlled entity
Source: http://www.tataelxsi.com/company/about-us.html

A part of the $100 billion Tata group, Tata Elxsi addresses the communications, consumer products, defence, healthcare, media
& entertainment, semiconductor and transportation sectors.

Final Set of Comparable Taxpayers

Below are the uncontrolled taxpayers that have been deemed comparable after the second review.
The financial data associated with these taxpayers was used to construct an arm's length range. See
Appendix B for financial information about each comparable uncontrolled taxpayer. The arm's length
range appears in the next section.
Comparable Taxpayers

Total Accepted After Search and Evaluation: 8

3i Infotech Ltd
3i Infotech Limited is an India-based information technology company. The Company has a set of IP
based software solutions, coupled with a range of information technology (IT) services to address the
dynamic requirements of a range of industry verticals, including insurance, banking, capital markets,
and asset and wealth management. It also provides solutions for other verticals, such as government,
manufacturing, retail, distribution, telecom and healthcare. It provides IT solutions and transaction
services for the banking, financial services and insurance industry. Through its IT offerings, it provides
clients with software products covering banking, insurance and financial services, application
development and maintenance and IT infrastructure services. As of March 3, 2012, it had 29
subsidiaries located in five geographies. During the year ended March 3, 2012, Fineng Solutions
Private Limited and J&B Software India Private Limited, two of the subsidiaries of it were merged with
it.

Source: http://www.3i-infotech.com/content/services/services.aspx

3i Infotech Limited, an information technology company, provides a range of IP based software

solutions and IT services primarily in India. The company offers asset and wealth management
solution accelerators and software products, which enable management of various asset classes
across the investment lifecycle.
Acropetal Technologies Ltd
Acropetal Technologies Limited (ATL) is a Business Technology Solutions Company providing on-
demand solutions in the verticals of Education; Healthcare; Manufacturing CPG and Retail;
Government and Citizen Services; Energy and Environment, and Engineering and Infrastructure. The

73
 Appendices

Company provides services and offerings in four categories: Engineering Design Services, Healthcare,
Enterprise Solutions and IT Infrastructure Solutions. Engineering Design Services include services,
such as architectural, structural, electrical, plumbing, steel detailing and design engineering,
Healthcare include services, such as Hospital Management System, electronic medical records and
diagnostics. IT Infrastructure Solutions include services, such as information life cycle management,
network security solution, IT infrastructure management services and cloud services. In July 2012, two
of its subsidiaries, Acropetal Inc,. USA and Optech Consulting Inc,. USA were merged and named
Acropetal Inc,. USA.

Source: http://www.acropetal.com/

Acropetal Technologies Limited operates as a business technology solutions company. It provides

various solutions for various verticals, including education, healthcare, manufacturing CPG and retail,
government and citizen services, energy and environment, and engineering and infrastructure.
Allied Digital Services Ltd.
Allied Digital Services Limited (ADSL) is an information technology (IT) infrastructure management
and technical support services outsourcing company. The Company is a global IT transformation
architect. ADSL has its operations pan India, the United States, Australia, Europe and Middle East
Asia. The Company is engaged in designing, developing, deploying and delivering IT infrastructure
services. It provides range of information technology and consultancy services, including infrastructure
services, end user IT support, IT asset life cycle, enterprise applications and integrated solutions.
ADSL operates in two segments: Enterprise Computing based Solutions and Infrastructure
Management based Solutions. As of March 31, 2012, ADSL’s geographic market included 132
locations across India and 52 locations in the United States.

Source: http://www.allieddigital.net/us/services.html

The company offers IT as a Service, including IT transformation consulting, datacenter hosting,

migration and management, IT optimization and modernization, and disaster recovery hosting
services; and infrastructure services comprising infrastructure management, information security
surveillance, security assessment, advisory, and professional services, as well as Infrastructure-as-a-
Service.
ASM Technologies Ltd
ASM Technologies Limited (ASM) is an information technology (IT) services company. The Company
provides consulting services in business systems, engineering services, IT infrastructure services and
technology solutions. Business Systems consists of enterprise resource planning (ERP) package
services (SAP, Oracle, PeopleSoft and Microsoft Dynamics), implementation, rollout, upgrade,
training, documentation, support and maintenance; ERP product development services and enterprise
mobility. Engineering Services include services in process, manufacturing, systems and design and
development activities in the areas of mechanical, electrical and electronics; product ideation,
industrial design and concepts generation; detailed engineering; modeling and analysis; reverse
engineering; sustenance engineering, and tooling and test fixtures. IT Infrastructure Services include
Mobility Infrastructure and Network Security. Technology Solutions include Product Development and
Product Testing.

Source: http://www.asmltd.com/html/enterprise_application.htm

ASM Technologies Limited provides consulting services in business systems, engineering services, IT
infrastructure services, and technology solutions in India, Singapore, the United States, and the United
Kingdom.
GSS Infotech Ltd
GSS Infotech Limited operates in software services. The Company offers cloud enablement services
remote infrastructure and application management services. The Company provides a range of

74
 Appendices

services, which includes infrastructure management services, application management services,

testing services, cloud solutions, mobile solutions, health care solutions and consulting services.
Infrastructure management services consist of remote server management and monitoring services,
service desk, server management, storage management, platform hardening and systems integration.
Application management services include Web applications, IPhone / iPad, Internet, client server,
android devices, service enablement, standalone, blackberry phones, Web services and windows
phone and reporting.

Source: http://www.gssinfotech.com/index.html#

It offers remote infrastructure management services, including server management and monitoring,
service desk, storage management, platform hardening, systems integration, database administration,
messaging and collaboration, managed desktop, application packaging and distribution, and Wintel
server management and migration; and database management services, such as administration,
monitoring, performance tuning, support, consulting, migration and upgrades, and projects.
Hexaware Technologies Limited
Hexaware Technologies Limited (Hexaware ) is an India-based company engaged in information
technology consulting, software development and business process outsourcing. The Company’s
operating segments include travel transportation, hospitality and logistics; nbanking financial services;
insurance and healthcare; manufacturing and services, and others. Hexaware provides multiple
service offerings to its clients across various industries comprising travel, transportation, hospitality,
logistics, banking, financial services, insurance, healthcare, manufacturing and services. The various
service offerings comprise application development and management, enterprise package solutions,
infrastructure management, business intelligence and analytics, business process, quality assurance
and independent testing.

Source: http://hexaware.com/

The company offers enterprise application services in various applications, including PeopleSoft,
Oracle, SAP, Microsoft Dynamics, customer relationship management, and enterprise content
management solutions, as well as ERP shared application support and maintenance services.
Info Drive Software Ltd
Info-Drive Software Limited is and India-based engaged in information technology business. The
Company is a multi-dimensional Information technology and business process outsourcing services
company. The Company’s services portfolio consists of application implementation and maintenance,
business intelligence, enterprise solutions, business process outsourcing and business consulting.
InfoDrive has service delivery centers in India (Chennai and Bangalore), Dubai (UAE) supporting the
business development centers in India, the United States (New York), and Singapore. Some of the key
industry verticals serviced by the Company are banking and financial services, telecom, pension
industry and healthcare. As of March 31, 2012, the Company had six subsidiaries, Info-Drive Software
Inc., Info-Drive Systems Sdn.Bhd., Info-Drive Software LLC, Info-Drive Software Pte. Ltd., Info-Drive
Software Limited, and InfoDrive Mauritius Limited.

Source: http://www.infodriveservices.com/the_company/about_infodrive/

The company provides niche Busines process outsourcing solution to the US Markets and also serves
the high-growth Banking and telecom segments in the Middle East and Far East markets by providing
turnkey systems integration solutions entailing custom software implementation, hardware optimization
and data center maintenance.

NIIT Technologies Ltd.

NIIT Technologies Limited is an information technology (IT) solutions organization engaged in
application development and maintenance, managed services, cloud computing and business process

75
 Appendices

outsourcing to organizations in the financial services, insurance, travel, transportation and logistics,
manufacturing and distribution and government sectors. The Company delivers services across
continents directly and through its network of subsidiaries. It is servicing customers in North & South
America, Europe, the Middle East, Asia and Australia. The Company’s service offerings include
application development and management, package implementation, managed services, platform
based services, business process outsourcing and cloud computing. The Company’s subsidiaries
include NIIT GIS Ltd, India, NIIT SmartServe Ltd, India, NIIT Technologies Services Limited, India and
NIIT Technologies GmbH, Germany. In August 2011, the Company acquired Proyecta Sistemas de
Informacion S.A.

Source: http://www.niit-tech.com/services

The company provides application development services, including custom software development,
business intelligence, migration, and modernization, as well as functional and regression testing,
system testing, and full lifecycle testing of complex software applications; systems integration and
package implementation services; cloud computing services; managed services; platform-based
services; and business process outsourcing services, which enables clients to manage back office,
middle office, and front office operations.

Potential Comparable Taxpayers Eliminated by Bulk Rejections

Potential Comparable Taxpayer Bulk Rejection Reason

Average operating income is less than or equal to 0 for the years of
3i Infotech Ltd (Parent)
interest
Aarey Drugs and Pharmaceuticals Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Accel Frontline Limited Average Net Inventory/Total Net Sales is greater than or equal to 0.05

ACI Infocom Ltd(NDA) Net Sales missing for 2 or more years

Aditya Birla Minacs IT Services Ltd Net Sales missing for 2 or more years
Average operating income is less than or equal to 0 for the years of
Allsec Technologies Limited (Parent)
interest
Apollo Health Street Limited Net Sales missing for 2 or more years

Apw President Systems Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Aricent Net Sales missing for 2 or more years

Arms Paper Ltd Net Sales missing for 2 or more years

Arora Fibres Ltd Net Sales missing for 2 or more years

Artson Engineering Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Asahi Industries Ltd Net Sales missing for 2 or more years

Ashoka Buildcon Ltd. Average Net Inventory/Total Net Sales is greater than or equal to 0.05

ATV Projects India Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Avance Technologies Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Aztecsoft Limited Net Sales missing for 2 or more years

Aztecsoft Limited (Parent) Net Sales missing for 2 or more years

Baid Leasing & Finance Co(NDA) Net Sales missing for 2 or more years

76
 Appendices

Potential Comparable Taxpayer Bulk Rejection Reason

Bambino Agro Industries Ltd(NDA) Net Sales missing for 2 or more years

Benzo Petro International Ltd(NDA) Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Bharatiya Global Infomedia Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Calcom Vision Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05
Average operating income is less than or equal to 0 for the years of
California Software Company Ltd.
interest
Charms Industries Ltd Net Sales missing for 2 or more years

Clio Infotech Ltd(NDA) Net Sales missing for 2 or more years

Average operating income is less than or equal to 0 for the years of
Computer Point Ltd
interest
Consolidated Construction Consortium Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

CORE Education and Technologies Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05
Average operating income is less than or equal to 0 for the years of
Cressanda Solutions Ltd
interest
Average operating income is less than or equal to 0 for the years of
Cura Technologies Ltd
interest
Average operating income is less than or equal to 0 for the years of
Cybertech Systems and Software Ltd
interest
Damodar Industries Ltd Net Sales missing for 2 or more years

Danlaw Technologies India Limited Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Dhenu Buildcon Infra Ltd Net Sales missing for 2 or more years

Digital GlobalSoft Limited Net Sales missing for 2 or more years

Dion Global Solutions Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Dynacons Systems & Solutions Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Empower India Ltd Net Sales missing for 2 or more years

Encore Software Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Engineers India Limited (Parent) Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Ennore Coke Ltd (Parent) Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Everlon Synthetics Ltd(NDA) Net Sales missing for 2 or more years

Finaventure Capital Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05
Average operating income is less than or equal to 0 for the years of
Four Soft Ltd. (Parent)
interest
Fusion Fittings India Limited Average Net Inventory/Total Net Sales is greater than or equal to 0.05

GKW Limited Net Sales missing for 2 or more years

GKW Ltd (Parent) Net Sales missing for 2 or more years

Goldstone Technologies Ltd. Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Goldstone Technologies Ltd.(Parent) Average Net Inventory/Total Net Sales is greater than or equal to 0.05
Average operating income is less than or equal to 0 for the years of
Green Fire Agri Commodities Ltd
interest
Hindustan Dorr Oliver Ltd. Average Net Inventory/Total Net Sales is greater than or equal to 0.05

77
 Appendices

Potential Comparable Taxpayer Bulk Rejection Reason

Hindustan Dorr Oliver Ltd. (Parent) Average Net Inventory/Total Net Sales is greater than or equal to 0.05

iGATE Global Solutions Ltd Net Sales missing for 2 or more years

iGATE Global Solutions Ltd (P) Net Sales missing for 2 or more years

Intellivate Capital Advisors ltd Net Sales missing for 2 or more years
Average operating income is less than or equal to 0 for the years of
Intense Technologies Ltd.
interest
Jain Infraprojects Limited Net Sales missing for 2 or more years

Jauss Polymers Ltd(NDA) Net Sales missing for 2 or more years

Kesar Petroproducts Ltd(NDA) Net Sales missing for 2 or more years

KLG Systel Ltd. Average Net Inventory/Total Net Sales is greater than or equal to 0.05

KLG Systel Ltd.(Parent) Average Net Inventory/Total Net Sales is greater than or equal to 0.05

KMC Speciality Hospitals India Ltd Net Sales missing for 2 or more years

Koa Tools India Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Konark Synthetic Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Linear Industries Ltd Net Sales missing for 2 or more years

Link Pharma Chemicals Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Linkson International Ltd Net Sales missing for 2 or more years

M P I L Corporation Ltd(NDA) Net Sales missing for 2 or more years

Average operating income is less than or equal to 0 for the years of
Maars Software International Ltd
interest
Madhucon Projects Ltd. Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Marg Ltd. Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Marg Ltd. (Parent) Average Net Inventory/Total Net Sales is greater than or equal to 0.05
Average operating income is less than or equal to 0 for the years of
Mascon Global Ltd
interest
Average operating income is less than or equal to 0 for the years of
Mastek Limited (Parent)
interest
McNally Bharat Engineering Company Ltd. Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Micro Technologies (India) Limited Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Mobile Telecommunications Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

MOLD-TEK Technologies Limited Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Muller & Phipps (India) Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05
Average operating income is less than or equal to 0 for the years of
Nakshatra Infrastructure Limited
interest
Net 4 India Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Nirmal Bot Ltd Net Sales missing for 2 or more years

Niyati Industries Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Nova Iron and Steel Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Omnitech Infosolutions Limited Average Net Inventory/Total Net Sales is greater than or equal to 0.05

78
 Appendices

Potential Comparable Taxpayer Bulk Rejection Reason

Ontrack Systems Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Orient Information Technology Ltd. Net Sales missing for 2 or more years

Oswal Agro Mills Ltd (Parent) Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Panchsheel Organics Ltd(NDA) Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Paramount Cosmetics (India) Ltd(NDA) Net Sales missing for 2 or more years

Parle Software Ltd Net Sales missing for 2 or more years

Average operating income is less than or equal to 0 for the years of
Popular Estate Management Ltd
interest
Average operating income is less than or equal to 0 for the years of
Prabhav Industries Ltd
interest
Praj Industries Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Praj Industries Ltd (Parent) Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Prithvi Information Solutions Ltd. Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Radiant Info Systems Limited Net Sales missing for 2 or more years

Rajath Finance Limited Net Sales missing for 2 or more years

Religare Technova Global Sol. Ltd Net Sales missing for 2 or more years

Rexnord Electronics & Controls(NDA) Net Sales missing for 2 or more years

Rishiroop Rubber International Ltd(NDA) Net Sales missing for 2 or more years

RITES Ltd. Net Sales missing for 2 or more years

Ritesh International Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Saka Ltd Net Sales missing for 2 or more years

Saraswati Commercial (india) Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Sarup Industries Ltd Net Sales missing for 2 or more years

Satyam Computer (ADR) Net Sales missing for 2 or more years

Scanpoint Geomatics Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Sify Technologies Limited Net Sales missing for 2 or more years

Silverline Technologies (ADR) Net Sales missing for 2 or more years

Simran Farms Ltd(NDA) Net Sales missing for 2 or more years

Southern Ispat Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Starlite Components Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Sumeru Industries Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Super Syncotex India Ltd(NDA) Net Sales missing for 2 or more years

TCS e-Serve Ltd Net Sales missing for 2 or more years

Technvision Ventures Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Telesys Info-Infra I Ltd Net Sales missing for 2 or more years

The KCP Ltd (Parent) Average Net Inventory/Total Net Sales is greater than or equal to 0.05

79
 Appendices

Potential Comparable Taxpayer Bulk Rejection Reason

Tokyo Plast International Ltd Net Sales missing for 2 or more years
Average operating income is less than or equal to 0 for the years of
Triton Corp Ltd.
interest
Average operating income is less than or equal to 0 for the years of
Triton Corp Ltd. (Parent)
interest
Two-up Financial Services Ltd Net Sales missing for 2 or more years

UB Engineering Limited Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Universal Office Automation Ltd Net Sales missing for 2 or more years

Valuemart Info Technologies Ltd Net Sales missing for 2 or more years

Vama Industries Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Visagar Financial Services Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

VisualSoft Technologies Limited Net Sales missing for 2 or more years

VJIL Consulting Limited Net Sales missing for 2 or more years

Wisec Global Ltd Average Net Inventory/Total Net Sales is greater than or equal to 0.05

Ybrant Technologies Limited Net Sales missing for 2 or more years

Yokogawa India Limited Net Sales missing for 2 or more years

80
Potential Comparable Taxpayers Eliminated in First Review
Potential Comparable Taxpayer Rejection Reason

ABM Knowledgeware Ltd Primarily provides software development services

Accelya Kale Solutions Ltd Primarily provides software development services

Accelya Kale Solutions Ltd (Parent) Primarily provides software development services

Aftek Ltd. Primarily provides software development services

Aftek Ltd. (Parent) Primarily provides software development services

Allcargo Logistics Ltd Primarily provides software development services

Allcargo Logistics Ltd (Parent) Primarily provides software development services

Allsec Technologies Limited Primarily provides software development services

Anand Projects Ltd Primarily provides software development services

Aqua Logistics Limited Primarily provides software development services

Artefact Projects Ltd Primarily provides software development services

aurionPro Solutions Limited Primarily provides software development services

aurionPro Solutions Limited (Parent) Primarily provides software development services

Aurum Soft Systems Ltd Primarily provides software development services

AXIS-IT&T Ltd Primarily provides software development services

Birla Shloka Edutech Ltd Primarily provides software development services

CMC Limited Primarily provides software development services

CMC Limited (Parent) Primarily provides software development services

Cni Research Ltd Primarily provides software development services

Coral Hub Limited Primarily provides software development services

CORE Education and Technologies Ltd (P) Primarily provides software development services

Datamatics Global Services Ltd Primarily provides software development services

Datamatics Global Services Ltd(Parent) Primarily provides software development services

Diamond Infosystems Ltd Primarily provides software development services

Dion Global Solutions Ltd (Parent) Primarily provides software development services

eClerx Services Limited Primarily provides software development services

Excel Infoways Limited Primarily provides software development services

FCS Software Solutions Limited Primarily provides software development services

Four Soft Ltd. Primarily provides software development services

Genesys International Corp Ltd Primarily provides software development services

Geodesic Limited Primarily provides software development services

Geodesic Limited (P) Primarily provides software development services

Glodyne Technoserve Limited Primarily provides software development services

81
 Potential Comparable Taxpayer Rejection Reason

Glodyne Technoserve Limited (Parent) Primarily provides software development services

Green Fire Agri Commodities Ltd (Parent) Primarily provides software development services

HCL Technologies Limited Primarily provides software development services

HCL Technologies Limited (Parent) Primarily provides software development services

Hexaware Technologies Limited (Parent) Primarily provides software development services

Hinduja Global Solutions Ltd Primarily provides software development services

HOV Services Limited Primarily provides software development services

HOV Services Limited (Parent) Primarily provides software development services

I Power Solutions India Ltd Primarily provides security services

iGate Computer Systems Ltd Primarily provides security services

iGATE Computer Systems Ltd (Parent) Primarily provides security services

Infinite Computer Solutions (In) Ltd Primarily provides security services

Infosys Ltd Primarily provides security services

Infosys Ltd (Parent) Primarily provides security services

Infosys Ltd ADR Primarily provides security services

InfoTech Enterprises Limited (Parent) Primarily provides security services

Intec Capital Ltd Primarily provides security services

Kaashyap Technologies Ltd Primarily provides security services

KPIT Cummins Infosystems Limited Primarily provides security services

KPIT Cummins Infosystems Ltd. (Parent) Primarily provides engineering services

Mastek Limited Primarily provides engineering services

McNally Bharat Eng. Co. Ltd. (Parent) Primarily provides engineering services

Megasoft Ltd. (Parent) Primarily provides maintenance services

Melstar Information Technologies Ltd Primarily provides engineering services

Mindteck India Ltd Primarily provides engineering services

NIIT Technologies Ltd. (Parent) Primarily provides engineering services

Nucleus Software Exports Ltd. Primarily provides engineering services

OnMobile Global Limited Primarily provides engineering services

Oracle Financial Services Software Ltd. Primarily provides engineering services

Oracle Financial Services SoftwareLtd(P) Primarily provides engineering services

Persistent Systems Limited Primarily provides engineering services

Polaris Financial Technology Ltd Primarily provides engineering services

Polaris Financial Technology Ltd (P) Primarily provides engineering services

Powersoft Global Solutions Ltd Primarily provides engineering services

R Systems International Limited Primarily provides engineering services

82
 Potential Comparable Taxpayer Rejection Reason

Ramco Systems Limited Primarily provides engineering services

Ramco Systems Limited (Parent) Primarily provides engineering services

Ranklin Solutions Limited Primarily provides engineering services

Rolta India Limited Primarily provides financial services

Rolta India Limited (Parent) Primarily provides financial services

Saksoft Ltd. Primarily provides financial services

Saksoft Ltd. (Parent) Primarily provides financial services

Satyam Computer Services Limited Primarily provides financial services

Satyam Computer Services Limited(Parent) Primarily provides financial services

Secure Earth Technologies Ltd Primarily provides financial services

Silverline Technologies Limited (Parent) Primarily provides financial services

Softsol India Ltd Primarily provides financial services

Sonata Software Limited Primarily provides financial services

Sonata Software Limited (Parent) Primarily provides financial services

Sparsh BPO Services Ltd Primarily provides financial services

Spectacle Infotek Ltd Primarily provides financial services

Subex Ltd. Primarily provides financial services

Subex Ltd. (Parent) Primarily provides financial services

Tata Consultancy Services Limited Primarily provides financial services

Tata Consultancy Services Ltd (Parent) Primarily provides financial services

Tech Mahindra Limited Primarily provides financial services

Tech Mahindra Limited (Parent) Primarily provides financial services

Thinksoft Global Services Limited Primarily provides telecommunications services

Vaarad Ventures Ltd Primarily provides telecommunications services

Vedvaag Systems Ltd Primarily provides telecommunications services

Virinchi Technologies Ltd Primarily provides telecommunications services

Visesh Infotecnis Ltd Primarily provides telecommunications services

VKS Projects Ltd Primarily provides telecommunications services

Wipro Limited Primarily provides telecommunications services

Wipro Limited (ADR) Primarily provides telecommunications services

Wipro Limited (Parent) Primarily provides telecommunications services

Ybrant Digital Ltd Primarily provides telecommunications services

Zensar Technologies Limited Primarily provides telecommunications services

Zensar Technologies Limited (P) Primarily provides telecommunications services

Zylog Systems Ltd. Primarily provides telecommunications services

83
84
Appendix: Comparables’ Financials (High Level IT/Data
Analytics Service)
3i Infotech Ltd

Income Statement

Description 2011 2010 2009 Average

Net Sales 16,810,200,000 25,697,500,000 24,485,400,000 22,331,033,333
Cost of Goods Sold 2,259,200,000 4,536,400,000 4,478,400,000 3,758,000,000
Gross Profit 14,551,000,000 21,161,100,000 20,007,000,000 18,573,033,333
Operating Expenses 13,172,400,000 16,735,700,000 15,779,900,000 15,229,333,333
Operating Income 1,378,600,000 4,425,400,000 4,227,100,000 3,343,700,000
Interest Expense
R and D Expense
Advertising Expense

Latest Tax Year Available: Mar 31, 2013

Currency: INR

Balance Sheet

Description 2011 2010 2009 Average

Avg Total Assets 41,581,300,000 40,561,300,000 38,810,400,000 40,317,666,667
Avg Operating Assets 35,176,850,000 35,282,350,000 35,867,850,000 35,442,350,000
Avg Net Payables 3,138,050,000 3,587,650,000 3,706,550,000 3,477,416,667
Avg Net Receivables 5,495,400,000 5,929,800,000 5,128,500,000 5,517,900,000
Avg Net PPE 2,668,600,000 2,044,600,000 3,681,250,000 2,798,150,000
Avg Net Inventory 32,300,000 43,700,000 74,700,000 50,233,333
Avg Cash 1,230,700,000 1,435,450,000 1,777,900,000 1,481,350,000
Avg Cash And Equivalent
Avg LIFO Reserve
Avg Invested Capital

Latest Tax Year Available: Mar 31, 2013

Currency: INR

Acropetal Technologies Ltd

Income Statement

Description 2011 2010 2009 Average

Net Sales 3,241,806,600 2,014,836,730 1,521,968,200 2,259,537,177

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Cost of Goods Sold 594,628,660 -40,766,310 2,183,490 185,348,613
Gross Profit 2,647,177,940 2,055,603,040 1,519,784,710 2,074,188,563
Operating Expenses 2,044,374,950 1,526,459,640 1,062,634,720 1,544,489,770
Operating Income 602,802,990 529,143,400 457,149,990 529,698,793
Interest Expense
R and D Expense 752,746,800 752,746,800
Advertising Expense 220,298,380 136,077,850 98,145,850 151,507,360

Latest Tax Year Available: Mar 31, 2013

Currency: INR

Balance Sheet

Description 2011 2010 2009 Average

Avg Total Assets 5,181,677,505 3,133,176,310 1,818,395,460 3,377,749,758
Avg Operating Assets 3,272,372,950 1,983,774,525 1,691,485,620 2,315,877,698
Avg Net Payables 276,793,895 83,117,380 20,415,050 126,775,442
Avg Net Receivables 148,605,790 18,106,205 34,635,705 67,115,900
Avg Net PPE 484,542,310 802,681,460 1,036,925,165 774,716,312
Avg Net Inventory 1,209,145 0 18,647,000 6,618,715
Avg Cash 346,843,785 311,683,610 79,259,840 245,929,078
Avg Cash And Equivalent
Avg LIFO Reserve
Avg Invested Capital

Latest Tax Year Available: Mar 31, 2013

Currency: INR

Allied Digital Services Ltd.

Income Statement

Description 2011 2010 2009 Average

Net Sales 5,844,972,000 7,143,963,000 6,723,214,000 6,570,716,333
Cost of Goods Sold 4,238,575,000 4,816,117,000 4,097,063,000 4,383,918,333
Gross Profit 1,606,397,000 2,327,846,000 2,626,151,000 2,186,798,000
Operating Expenses 1,380,746,000 1,621,164,000 1,412,315,000 1,471,408,333
Operating Income 225,651,000 706,682,000 1,213,836,000 715,389,667
Interest Expense
R and D Expense
Advertising Expense 12,245,000 19,444,000 12,867,000 14,852,000

Latest Tax Year Available: Mar 31, 2013

Currency: INR

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Balance Sheet

Description 2011 2010 2009 Average

Avg Total Assets 8,682,592,000 8,306,165,000 6,331,745,500 7,773,500,833
Avg Operating Assets 7,909,481,500 7,843,937,000 6,167,568,000 7,306,995,500
Avg Net Payables 198,685,000 264,038,500 376,219,000 279,647,500
Avg Net Receivables 2,755,576,000 2,815,136,500 2,464,907,500 2,678,540,000
Avg Net PPE 2,529,132,500 1,782,322,000 974,297,000 1,761,917,167
Avg Net Inventory 332,202,000 194,605,500 118,471,000 215,092,833
Avg Cash 206,161,000 200,360,500 97,930,000 168,150,500
Avg Cash And Equivalent
Avg LIFO Reserve
Avg Invested Capital

Latest Tax Year Available: Mar 31, 2013

Currency: INR

ASM Technologies Ltd

Income Statement

Description 2011 2010 2009 Average

Net Sales 1,455,700,160 1,116,464,500 689,332,320 1,087,165,660
Cost of Goods Sold 1,213,158,720 953,011,550 590,609,140 918,926,470
Gross Profit 242,541,440 163,452,950 98,723,180 168,239,190
Operating Expenses 81,473,650 62,649,380 47,233,030 63,785,353
Operating Income 161,067,790 100,803,570 51,490,150 104,453,837
Interest Expense
R and D Expense
Advertising Expense 1,619,550 2,426,960 950,120 1,665,543

Latest Tax Year Available: Mar 31, 2013

Currency: INR

Balance Sheet

Description 2011 2010 2009 Average

Avg Total Assets 778,822,210 504,250,275 353,239,570 545,437,352
Avg Operating Assets 698,378,935 454,737,540 321,642,685 491,586,387
Avg Net Payables 55,698,150 38,264,530 39,227,510 44,396,730
Avg Net Receivables 71,300 489,650 4,251,150 1,604,033
Avg Net PPE 92,190,405 74,931,045 59,490,400 75,537,283
Avg Net Inventory

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Avg Cash 46,823,255 25,815,655 4,205,480 25,614,797
Avg Cash And Equivalent
Avg LIFO Reserve
Avg Invested Capital

Latest Tax Year Available: Mar 31, 2013

Currency: INR

GSS Infotech Ltd

Income Statement

Description 2011 2010 2009 Average

Net Sales 2,914,693,250 4,846,713,570 4,282,830,070 4,014,745,630
Cost of Goods Sold 2,656,640,630 3,616,618,150 3,162,375,240 3,145,211,340
Gross Profit 258,052,620 1,230,095,420 1,120,454,830 869,534,290
Operating Expenses 382,475,020 469,302,390 423,275,080 425,017,497
Operating Income -124,422,400 760,793,030 697,179,750 444,516,793
Interest Expense
R and D Expense
Advertising Expense 9,267,920 11,114,530 13,067,060 11,149,837

Latest Tax Year Available: Mar 31, 2013

Currency: INR

Balance Sheet

Description 2011 2010 2009 Average

Avg Total Assets 5,029,886,560 5,450,755,640 4,382,250,430 4,954,297,543
Avg Operating Assets 4,796,386,360 4,578,224,270 3,357,827,920 4,244,146,183
Avg Net Payables 0 101,912,615 182,220,535 94,711,050
Avg Net Receivables 716,700,245 331,754,925 19,538,750 355,997,973
Avg Net PPE 202,613,485 370,515,820 373,249,095 315,459,467
Avg Net Inventory
Avg Cash 147,517,770 817,297,120 926,619,920 630,478,270
Avg Cash And Equivalent
Avg LIFO Reserve
Avg Invested Capital

Latest Tax Year Available: Mar 31, 2013

Currency: INR

Hexaware Technologies Limited

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Income Statement

Description 2011 2010 2009 Average

Net Sales 14,505,120,000 10,545,640,000 10,385,620,000 11,812,126,667
Cost of Goods Sold 2,240,770,000 1,634,540,000 1,197,360,000 1,690,890,000
Gross Profit 12,264,350,000 8,911,100,000 9,188,260,000 10,121,236,667
Operating Expenses 9,895,910,000 8,247,110,000 7,483,160,000 8,542,060,000
Operating Income 2,368,440,000 663,990,000 1,705,100,000 1,579,176,667
Interest Expense
R and D Expense
Advertising Expense 32,590,000 29,200,000 33,860,000 31,883,333

Latest Tax Year Available: Dec 31, 2012

Currency: INR

Balance Sheet

Description 2011 2010 2009 Average

Avg Total Assets 13,544,630,000 11,971,715,000 10,955,260,000 12,157,201,667
Avg Operating Assets 9,246,415,000 8,218,260,000 8,007,585,000 8,490,753,333
Avg Net Payables 485,015,000 347,875,000 418,300,000 417,063,333
Avg Net Receivables -1,805,000 -9,335,000 -9,885,000 -7,008,333
Avg Net PPE 3,114,810,000 3,002,225,000 3,159,990,000 3,092,341,667
Avg Net Inventory
Avg Cash 333,605,000 361,880,000 623,145,000 439,543,333
Avg Cash And Equivalent 254,260,000 254,260,000
Avg LIFO Reserve
Avg Invested Capital

Latest Tax Year Available: Dec 31, 2012

Currency: INR

Info Drive Software Ltd

Income Statement

Description 2011 2010 2009 Average

Net Sales 1,154,072,000 1,281,954,000 2,133,679,000 1,523,235,000
Cost of Goods Sold 981,769,000 949,846,000 1,579,883,000 1,170,499,333
Gross Profit 172,303,000 332,108,000 553,796,000 352,735,667
Operating Expenses 163,469,000 218,579,000 405,579,000 262,542,333
Operating Income 8,834,000 113,529,000 148,217,000 90,193,333
Interest Expense
R and D Expense 7,842,000 7,842,000

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Advertising Expense 386,000 1,816,000 429,000 877,000

Latest Tax Year Available: Mar 31, 2012

Currency: INR

Balance Sheet

Description 2011 2010 2009 Average

Avg Total Assets 2,040,965,000 1,946,271,000 1,696,085,000 1,894,440,333
Avg Operating Assets 1,532,720,000 1,516,022,500 1,455,465,000 1,501,402,500
Avg Net Payables 324,114,000 348,551,000 279,634,500 317,433,167
Avg Net Receivables 816,340,000 493,644,500 383,603,500 564,529,333
Avg Net PPE 76,566,000 84,971,000 104,269,500 88,602,167
Avg Net Inventory 4,291,500 22,833,000 43,315,000 23,479,833
Avg Cash 19,550,500 95,924,000 89,353,000 68,275,833
Avg Cash And Equivalent 18,364,000 18,718,000 18,541,000
Avg LIFO Reserve
Avg Invested Capital

Latest Tax Year Available: Mar 31, 2012

Currency: INR

NIIT Technologies Ltd.

Income Statement

Description 2011 2010 2009 Average

Net Sales 15,764,759,680 12,322,519,890 9,137,096,690 12,408,125,420
Cost of Goods Sold 539,461,460 1,391,500,970 721,627,250 884,196,560
Gross Profit 15,225,298,220 10,931,018,920 8,415,469,440 11,523,928,860
Operating Expenses 12,776,615,390 8,758,445,710 6,816,802,930 9,450,621,343
Operating Income 2,448,682,830 2,172,573,210 1,598,666,510 2,073,307,517
Interest Expense
R and D Expense
Advertising Expense 189,765,700 137,625,490 121,418,610 149,603,267

Latest Tax Year Available: Mar 31, 2013

Currency: INR

Balance Sheet

Description 2011 2010 2009 Average

Avg Total Assets 11,700,291,885 9,191,320,790 8,234,362,830 9,708,658,502
Avg Operating Assets 9,190,779,505 7,485,514,150 6,477,035,250 7,717,776,302

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Avg Net Payables 1,039,076,960 788,728,930 801,355,850 876,387,247
Avg Net Receivables 211,144,355 236,259,375 123,471,370 190,291,700
Avg Net PPE 2,589,997,790 2,268,490,430 2,185,749,345 2,348,079,188
Avg Net Inventory 6,497,365 5,318,600 7,985,755 6,600,573
Avg Cash 1,195,178,675 944,392,215 882,066,840 1,007,212,577
Avg Cash And Equivalent 111,881,025 46,792,170 79,336,598
Avg LIFO Reserve
Avg Invested Capital

Latest Tax Year Available: Mar 31, 2013

Currency: INR

Appendix: Details of Adjustment Calculations

Adjustment for Terms of Purchase (Payables)

Formula:

⎡⎛ Avg APTP ⎞ ⎤ ⎛ r ⎞
AP Adjustment = ⎢⎜⎜ * Sales Comp ⎟⎟ − Avg APComp ⎥ * ⎜ ⎟
⎣⎝ Sales TP ⎠ ⎦ ⎝1 + r ⎠

Adjusted COGS Comp = COGS Comp + AP Adjustment

Where:
AP = Accounts Payable
Comp = Comparable Taxpayer
TP = Tested Party
r = Interest Rate

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