PA accord between India and Switzerland to usher in new era of tax cooperation between the nations
(India and Switzerland are…)
NEW DELHI: India and Switzerland are finding it difficult to break a deadlock over sharing information on secret bank accounts held in the European nation but both sides are close to finalising the first accord on a bilateral advance pricing agreement that will allow taxpayers to calculate tax liability beforehand.
“We are in talks to finalise an APA,” said an official familiar with the matter. This will be a ground-breaking move and the first instance of significant tax cooperation between the two countries that have hitherto witnessed a sharp exchange of letters on sharing of data on Indians having bank accounts in Switzerland, particularly of names appearing in what is popularly called the “HSBC list”.
Switzerland has been reluctant to share details about those who figure on the list citing a domestic law that bars it from giving any information if data was not obtained through official means. Indian tax authorities have argued the information was legitimately sourced from the French tax authorities. But forward movement on a bilateral APA s brings cheer for investors from both countries as it will provide some tax certainty. Bilateral APAs provide enhanced certainty to a taxpayer as it also involves the backing of the tax authority of home country.
India is in advanced stages of discussions with many countries including Japan on bilateral APAs. Tax experts say forward movement on conclusion of a bilateral APA will be hugely positive for the investor community. “There is a huge pendency in unilateral and bilateral APA cases. The industry is eagerly waiting for more APAs to be concluded. If a bilateral case is concluded soon, it would give a positive signal to the taxpayers and would be indicative of significant progress in the APA programme,” said Vijay Iyer, partner and national leader, transfer pricing, EY.
An APA is essentially a contract between a taxpayer and the tax authorities that sets out beforehand the method for determining transfer pricing pertaining to transactions between a subsidiary and its foreign parent.
This relates to the pricing of assets, tangibles and intangibles, services, and funds that are transferred within an organisation in a cross-border transaction. Transfer pricing transactions have been the source of a large number of high-profile tax disputes in India, earning it the tag of a taxadversarial regime globally.
Tax authorities have questioned and imposed taxes on a number of MNCs including Vodafone, Shell and Nokia. India’s APA programme that was rolled out in 2013-14 has been appreciated globally for its fairness and quick disposal.
In 2013-14, the first year of the APA rollout, as many as 146 applications were filed from across sectors including IT and IT enabled services, pharmaceuticals, financial services and chemicals on issues pertaining to royalties, corporate guarantees, outsourcing and interest income.
The scheme, introduced in the 2012-13 budget, is aimed at providing certainty to foreign taxpayers by shielding a company from any further questioning by tax authorities, litigation and compliance burden for a period of five years once an agreement is reached.
