A defensible model explains who performs functions, uses assets and controls risks. Contract labels are weak when conduct and capability point elsewhere.
Finin2min summary
A defensible model explains who performs functions, uses assets and controls risks. Contract labels are weak when conduct and capability point elsewhere.
Source review date: 4 July 2026. Read with the official text and the facts of the transaction.
Legal anchors
- Sections 161 and 165
- Income-tax Rules, 2026 comparability provisions
- OECD materials as persuasive guidance
How to analyse it
- Interview operating teams, not only tax personnel.
- Map decision rights and risk-control capability.
- Identify unique intangibles and economically significant assets.
- Choose the tested party only after assessing reliable comparables.
Practical illustration
An Indian captive is described as “low-risk,” but it negotiates customers, controls credit and develops local marketing intangibles. The contract and actual conduct require reconciliation.
What can go wrong?
- Template FAR copied year to year
- No evidence of risk control
- Selecting the tested party solely for a lower margin
Evidence pack
- Interview notes
- Decision matrix
- Asset/IP register
- Risk-control evidence
Decision workflow
- Freeze the facts and effective date.
- Identify the controlling Act, rule, notification, circular and jurisdictional overlay.
- Prepare a calculation or exposure note.
- Collect the evidence pack before filing, payment, signing or response.
- Record reviewer conclusion and assumptions.
Quick Q&A
Is the result automatic?
No. Interview operating teams, not only tax personnel.
What is the most important control?
Choose the tested party only after assessing reliable comparables.
What should be escalated?
Template FAR copied year to year, especially where money, deadlines, enforcement, personal liability or irreversible transaction steps are involved.
Official source trail
Secondary commentary may help interpretation, but it is not the source of law.