Govt Aims to Re­solve More Trans­fer Pric­ing Cases in FY17

Cen­tral Bureau of Direct Taxes had signed 55 APAs with multi­na­tion­als in 2015-16, now the govt tar­gets to re­solve about 100 cases this year

The Economic Times - - Com­pa­nies - Sachin.Dave @times­

Mum­bai: In a move to­wards a more pro­gres­sive tax­a­tion pol­icy, rev­enue of­fi­cials have set an ag­gres­sive tar­get of re­solv­ing about 100 trans­fer pric­ing is­sues by sign­ing ad­vance pric­ing agree­ments (APAs) with multi­na­tion­als this fis­cal, peo­ple close to the de­vel­op­ment said.

The gov­ern­ment, through the Cen­tral Bureau of Direct Taxes, had signed a record 55 APAs with multi­na­tion­als in 2015-16. In all, the In­dian gov­ern­ment has signed 64 APAs, in­clud­ing 62 in the last two years.

Now, the gov­ern­ment is get­ting more am­bi­tious and of­fi­cials are con­fi­dent about achiev­ing the tar­get. “We are al­ready work­ing on about 175 cases (APAs), and the tar­get is achiev­able,” said a per­son close to the de­vel­op­ment. “Also, the of­fi­cers who are deal­ing with the is­sue have now got fair amount of ex­pe­ri­ence and work would be faster, go­ing ahead.”

Samir Gandhi, part­ner at Deloitte Hask­ins & Sells LLP, said, “In the last one year, we have seen that the gov­ern­ment has been very ac­tive in re­solv­ing the trans­fer pric­ing cases through APAs. Go­ing for­ward, it is very likely that we will see more num­ber of cases be­ing re­solved.” 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 on the tax payer’s fu­ture global 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 gov­ern- ment’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. Of the to­tal APAs signed last year, 53 were uni­lat­eral agree­ments while two were bi­lat­eral agree­ments.

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.

In­dus­try track­ers ex­pect that some more “com­pli­cated” APAs would be signed this year. “Go­ing ahead some of th­ese cases (APAs) will in­volve rel­a­tively com­plex cases/ trans­ac­tions and also ap­pli­ca­tion of TP method­olo­gies of profit split and TNMM (trans­ac­tional net mar­gin method),” said Gandhi of Deloitte. In­dus­try ex­perts said the shift from a time when In­dia was con­sid­ered to be one of the most ag­gres­sive in the world on trans­fer pric­ing to the cur­rent sit­u­a­tion has hap­pened in the last two years.

“There are pri­mar­ily two de­vel­op­ments which have hap­pened in the last one year in the con­text of trans­fer pric­ing dis­putes,” said Ro­han K Phatarphekar, part­ner and na­tional head, global trans­fer pric­ing ser­vices, at KPMG. “One is the gov­ern­ment’s agenda of hav­ing a non-ad­ver­sar­ial tax regime and im­prov­ing the ease of do­ing busi­ness, which has re­sulted in lesser amount of trans­fer pric­ing ad­just­ments, and the other is the CBDT cir­cu­lar clearly lay­ing out the guide­lines as to when a case needs to be re­ferred for trans­fer pric­ing as­sess­ment which has re­duced the num­ber of cases picked up for scru­tiny,” he said.

Ex­perts also pointed out that the gov­ern­ment’s stance on lib­eral trans­fer pric­ing comes at a time when many MNCs face the prospect of ris­ing dis­putes. Due to new reg­u­la­tory frame­works like Base Ero­sion and Profit Shift­ing, trans­fer pric­ing dis­putes could go up in all ma­jor economies. Com­pa­nies and tax con­sul­tants said that not only is the In­dian gov­ern­ment go­ing all guns to re­solve old is­sues in last one year, but also there has been no ma­jor trans­fer pric­ing de­mand as of­fi­cials did not take an ag­gres­sive stance.

Tthere are about 650 pend­ing cases in APA, ac­cord­ing to a re­port by Deloitte. Go­ing ahead, a lot of dis­putes also set to be re­solved due to mu­tual APAs signed be­tween In­dian au­thor­i­ties and their US coun­ter­part.

Trans­fer pric­ing dis­putes are mainly re­lated to the cal­cu­la­tion of prof­its made by MNCs

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