Though the fineprint surrounding the Advance Pricing Agreement (APA) is still some time away , tax experts have termed it a game-changer, as the new regime will mitigate transfer pricing controversies and litigation.
David Bowen, Principal and National Transfer Pricing Practice Leader at Grant Thornton, Washington DC, said, “Historically, companies that engage in multinational inter-company transactions have faced significant tax risks associated with disagreements and controversies over their transfer pricing practices.”
Traditionally, he added, these risks have been expressed in terms of the actual financial impact and economic opportunity costs of tax authority challenges, and accurate financial reporting. Appropriate internal managerial controls and efficient treasury functions also play an important part, he said.
Many countries, including India, have had few tax administration mechanisms for proactively addressing transfer pricing (TP) matters. Typically, the pressure points have centred on compliance efforts, like contemporaneous documentation studies, to ward off tax penalties and adjustments.
Bowen is of the view that the new India APA provisions, however, present tremendous game changing opportunities for companies to manage proactively the tax and financial functions and risks associated with their multinational inter company transactions.
Just as the US APA programme ushered in an era of best practices for addressing TP issues, the India APA Act too is expected to do the same . For, APA programmes, when properly designed and administered, allow both taxpayers and tax administrators to achieve certainty for current and future tax years, often on a bilateral basis, he added.