Govt resolves transfer pricing disputes covering a decade through APA
MUMBAI: It seems, following a directive from PM Narendra Modi and Arun Jaitley, the Central Board of Direct Taxes (CBDT) is leaving no stones unturned to change the image of India from being too aggressive on taxation to being strict but friendly on corporate taxation.
The CBDT, which has been on a fast track to solve the transfer pricing disputes, has recently signed yet another advance pricing agreement (APA) with an animation services company.
The CBDT is taking a close look at 120 transfer pricing disputes with a view to settle them as the Modi government tries to rid India of the label of an overtly aggressive country for taxation.
The APA team has already signed more than 30 agreements in last few months and could end up settling anywhere about 60 by the end of March next year.
Of 550 APA applications pending with the government, about 35% are from the IT/ITeS sector. ET had reported on May 21 that the first agreement in the IT/ITeS space would be signed in three months.
Transfer pricing disputes in this sector are mainly related to outsourcing and the calculation of profit made by companies. Many firms have gone to court challenging the government’s transfer pricing adjustments. 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. Industry officials say the Modi government is pushing tax authorities to resolve about 120 transfer pricing disputes by the end of the financial year
This APA signed with the animation company is quite different from the others as the efforts that were put in to arrive at an appropriate mark-up for a niche industry going through a tough phase globally. While the Safe Harbour rules pegged a much higher percentage of 25% for the animation industry, the APA authorities deep dived into the various functional and economic analysis and the propositions put forth by the Company to understand the specific nuances of the business and the problems faced by the Company. Based on this analysis, the APA authorities and the Company agreed to a realistic and win-win mark-up, which till date is the lowest in the services sector. It was the receptiveness of the APA team that allowed the Company to distinguish itself from being cast under the IT/ITeS/KPO sector and understand the animation Industry separately, say industry trackers.
Rohan Phatarphekar, partner and head, transfer pricing at KPMG said “The approach adopted by the APA team would go a long way is dissuading fears in the minds of service industry players which felt that the mark-ups agreed upon in the past APAs were generally on the higher side.”
“It is indeed encouraging to note that, the APA team was not prejudiced with the fact that, animation per-se was a KPO activity under the safe harbour rules. They based their conclusions and negotiation on the facts of the case and did a thorough functional and economic analysis to understand the industry realities,” said Phatarphekar.
