Ease of doing business: CBDT looks to settle 120 transfer pricing disputes

MUMBAI: The Central Board of Direct Taxes (CBDT) is taking a close look at 120 transfer pricing disputes with a view to settling them as the Narendra Modi government tries to rid India of the label that it’s overly aggressive on taxation.

While the government aims to sign the 120 advance pricing agreements (APAs) by the end of the fiscal year, about 10 of these could be reached with some US-based, middle-ranked, information technology (IT) and information technology enabled services (ITeS) companies in the next two months, said people aware of the plan. Bigger companies such as Google and Dell will come up later, they said.

An APA determines the transferpricing methodology and taxation rate on an international transaction. Transfer pricing relates to transactions among units of a company.

Governments can reset these prices in case they feel these aren’t realistic or are aimed at tax avoidance. “The APA officials have already sent their research papers on each of the 120 cases that could be settled fast,” a senior official close to the development said. “The CBDT would now take a look at each case and take a call.”

Ease of doing business: CBDT looks to settle 120 transfer pricing disputesIn about eight to10 cases, the negotiations between the multinationals and revenue authorities are in advanced stages and could be closed in the next two months. “We expect a few APAs, including some in the IT/ITeS sector, getting signed in due course and many more by the end of this financial year,” said an analyst who’s advising some MNCs on transfer pricing.

Overseas investors are down on India owing to retrospective changes in tax rules, the levy of minimum alternate tax for years gone by and the imposition of levies related to transfer pricing. The government is looking to change that image to encourage investment in India.

“Dispute resolution on transfer pricing adjustments has been a major area of concern amongst multinationals doing business in India,” said Shefali Goradia, partner, BMR Advisors. “An effective resolution between the revenue authorities and the companies would improve India’s reputation as an investment destination.”

Most of the settlements could take place at a 15-20% tax rate, said those cited above. They included a revenue official and analysts. While these rates aren’t made public, in the past they have been in the “mid-20s” range, said a person familiar with the matter.

There are about 500 transfer pricing disputes pending between revenue authorities and multinationals.

Of these, about 150 queries were raised in the last financial year. Multinationals and analysts hope the sudden increase in the work pace on this front could mean faster dispute resolution. Still, reaching an agreement can be arduous.

After a thorough inspection, the APA authorities prepare position papers for CBDT’s consideration, said Rohan K Phatarphekar, partner and national head, global transfer pricing services, KPMG. “Subsequently, the negotiations are carried out with the taxpayers, which ultimately is referred back to CBDT and accordingly finalised,” he said.

Of the 120 cases cited above, position papers on most have been sent to the CBDT. Each position paper is a document of about 100 pages providing details about the dispute and possible solutions.

There is skepticism in some quarters regarding a speedy resolution. “The government clearly wants some progress on the transfer pricing disputes as this could provide the much-needed push to the economy,” said a senior analyst who’s advising on some of the biggest transfer pricing cases. “Yet, I see that the CBDT would just sit on these APAs and not pass them, hence just playing their usual delaying tactic.”

APAs are mainly unilateral, bilateral and multilateral. India signs unilateral APAs with multinationals that belong to countries with which it doesn’t have tax treaties. Unilateral APAs involve only the taxpayer and the tax authority.

Bilateral APAs involve the taxpayer, its local subsidiary, the Indian tax authority and that of the country the company is headquartered in. Multilateral APAs involve the taxpayer, two or more of its subsidiaries in different foreign countries, the Indian tax authority and that of the country where the company is headquartered.