Government hopes to resolve 100 transfer pricing issues by year end
MUMBAI: For the first time the government may end up resolving about 100 transfer pricing issues by signing advance pricing agreements (APAs) with multinationals this fiscal, people in the know said. Till February end, the government has signed about 75 APAs with multinationals, and expects that more transfer pricing issues could be resolved by the end of March, this year.
In the current financial year the Central Board of Direct Taxes (CBDT) had worked on about 175 such agreements with several IT, ITES, banking and pharma multinationals.
An APA is mainly an agreement between a tax payer—mostly multinationals— and tax authority— CBDT in India's case—where the transfer pricing methodology is determined. The methodology to calculate taxes could then be used for an agreed period of time on the tax payer's future international transactions.
Transfer pricing disputes are mainly related to the calculation of profit made by multinational companies and how they have been shifted to their parent. Many firms have gone to court, challenging the government's transfer pricing calculations.
In July 2012, the government introduced the APA programme, which allows companies and the revenue authorities to negotiate the rate at which tax is to be paid and avoid disputes.
Until February this year about 140 APAs have been signed, including about 10 bilateral APAs while the remaining are unilateral APAs.
A unilateral APA is an agreement between the tax payer and the tax authority of the country (CBDT). A bilateral agreement is signed by these two plus the tax authority of the country where the multinational is headquartered.
Currently there are about 650 pending cases in APA.
Experts point out that the government’s stance on liberal transfer pricing comes at a time when many multinationals face the prospect of increasing disputes across the world. Due to new regulatory frameworks like Base Erosion and Profit Shifting (BEPS), transfer pricing disputes could go up in all major economies.
In the current financial year the Central Board of Direct Taxes (CBDT) had worked on about 175 such agreements with several IT, ITES, banking and pharma multinationals.
An APA is mainly an agreement between a tax payer—mostly multinationals— and tax authority— CBDT in India's case—where the transfer pricing methodology is determined. The methodology to calculate taxes could then be used for an agreed period of time on the tax payer's future international transactions.
Transfer pricing disputes are mainly related to the calculation of profit made by multinational companies and how they have been shifted to their parent. Many firms have gone to court, challenging the government's transfer pricing calculations.
In July 2012, the government introduced the APA programme, which allows companies and the revenue authorities to negotiate the rate at which tax is to be paid and avoid disputes.
Until February this year about 140 APAs have been signed, including about 10 bilateral APAs while the remaining are unilateral APAs.
A unilateral APA is an agreement between the tax payer and the tax authority of the country (CBDT). A bilateral agreement is signed by these two plus the tax authority of the country where the multinational is headquartered.
Currently there are about 650 pending cases in APA.
Experts point out that the government’s stance on liberal transfer pricing comes at a time when many multinationals face the prospect of increasing disputes across the world. Due to new regulatory frameworks like Base Erosion and Profit Shifting (BEPS), transfer pricing disputes could go up in all major economies.
