Rollback provision in new DTAA makes it less taxing for Korean firms in India

In a relief to multinational companies located in Korea and doing business in India, the Finance Ministry on Friday clarified that the revised double taxation avoidance agreement between the two countries allows taxpayers to file for bilateral advance pricing agreements (APAs) along with rollback provision.

“Bilateral APA involving international transactions with associated enterprises in Korea for the APA period beginning 2017-18 can be filed along with request for rollback provision,” said the Central Board of Direct Taxes (CBDT), adding that inclusion of rollback provision in such bilateral APAs would also be subject to the applicable regulations in Korea.

India and Korea had signed a revised DTAA in May 2015, which came into force in September 2016.

Experts said the clarification will help multinational companies operating from Korea. “The extension of roll back benefits can be seen as a move to assuage corporates such as LG, Samsung who have been stuck in long drawn transfer pricing litigation,” said Amit Agarwal, Partner, Nangia & Co.

The CBDT had received a number of queries on the inclusion of a rollback provision.

“Introduction of Article 9(2) provides recourse to the taxpayers of both countries to apply for mutual agreement procedure in transfer pricing disputes as well as apply for bilateral APAs for the period beginning 2017-18,” it said.

Introduced by the Finance Act, 2012, APAs aim to provide a predictable and non-adversarial tax regime and to lessen the litigation in transfer pricing cases. They can be entered into for a period of five years at a time.

The rollback provision was subsequently introduced in the Finance Act 2014 and allows taxpayers to retrospectively apply the APA for a period fo four years in the past and settle covered disputes.

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