Making India attractive: new measures to reduce transfer pricing litigation

Doing business in India just got easier for international companies and home-grown multinationals with Finance Minister Arun Jaitley announcing new measures to reduce litigation on the transfer pricing front.

Three measures have been introduced on transfer pricing in the Budget — “roll back” provision in advance pricing agreements (APAs), range concept for determining arm’s length price and allowing multiple-year data for comparable analysis.

These steps will provide certainty to the taxpayer and go a long way in reducing “frivolous adjustments” in the Indian transfer pricing regime, SP Singh, Senior Director, Deloitte in India, told Business Line .

All these initiatives are international best practices prevalent in most developed countries, he said. Indian tax authorities have in recent years faced criticism for taking an “aggressive” stance on international taxation front, especially on transfer pricing issues.

The value of transfer pricing adjustments had run into several billion dollars in recent years and most of the demands have landed up in appellate forums.

An APA is an agreement between a taxpayer and tax authority determining the transfer pricing methodology for pricing the taxpayer’s international transactions for future years. The APA provisions were introduced in the income tax law from July 1, 2012.

A “roll-back” facility in APA would mean that an APA entered for future transactions could be applied for previous four years in specified circumstances.

This facility will help resolve recent pending disputes, said Rahul Mitra, Partner, Pricewaterhouse.

All the three measures will help reduce litigation around benchmarking analysis, he added.

Singh pointed out that a taxpayer availing of “roll-back” will get certainty for nine years (four years in the past and five years for the future).

The Finance Minister’s proposals to reduce litigation on transfer pricing gives a strong positive signal to investors that the Government is serious about reducing hurdles in doing business, said Arun Chhabra, Partner, Walker Chandiok & Associates.

The Budget has resolved some of the long-standing demands of taxpayers, especially roll-back of APAs, said Vijay Iyer, Partner and National Leader-Transfer Pricing, EY.

“Though the details are yet to be notified, the concepts of range and multiple year data have been advocated by taxpayers since the inception of transfer pricing rules in India. This would provide respite to the taxpayers,” Iyer said.

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