The Finance Ministry plans to issue internal guidance to enable its officers at the field level adopt some uniform approach in assessment of transfer pricing cases.

“Some guidance will come from us before December-end to address the problem of lack of uniformity in views”, said S.K.Mishra, Joint Secretary (foreign tax division), at the 3rd Annual India Tax Forum, organised by International Tax Review here.

Software sector

Stating that there was need for some guidance, Mishra cited the example of software development sector and pointed out the variation in margins that were offered to the tax department for assessment..

While the margins on international transactions offered in Delhi ranged from 5-48 per cent, it stood at 7-67 per cent in Mumbai.

In the case of Bangalore, the margins offered to the tax department for international transactions ranges from 8-70 per cent, said Mishra, who is the Competent Authority of India for mutual agreement procedure (MAP).

MAP is a consultative process between competent authorities of two countries to find amicable ways for resolving international tax disputes

In the last two years, about 140 cases have been resolved through the fast tracked MAP process, Mishra said.

“It needs to be seen whether such instructions will be internal or would be issued to taxpayers at large for their benefit”, said Aseem Chawla, Partner, MPCLegal, a law firm.

Beneficial to taxpayer

One must not lose sight of the fact that it is well settled law that circulars/clarifications issued has to be interpreted in a manner which is beneficial to taxpayer and is binding on tax department, Chawla said.

(This article was published on September 6, 2012)
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