Transfer pricing issues have become a bone of contention for multi national corporations (MNCs) operating in India. In fact, Vodafone, Nokia and Shell have already received notices from income tax authorities of India regarding transfer pricing and other taxation issues. Indian government has also proposed establishment of Income Tax Overseas Units (ITOUs) of India in foreign countries to deal with evasion of taxes. The compulsory transfer pricing audit based on monetary threshold may also be scrapped in India.
Meanwhile, the Indian tax department has received 232 applications from MNCs in 2013-14, up 60 per cent year-on- year, to obtain advance ruling over pricing arrangement for transactions within group firms and the ensuing tax liability. In 2012-13, 146 companies had applied for Advance Pricing Agreement, a mechanism that aims at curtailing disputes that may arise from transfer pricing issues between MNCs and the revenue department.
Of the 232, 206 companies are seeking “unilateral APA” (pact between tax payer and CBDT). The rest applied for “bilateral APA” (pact between taxpayers, tax authorities of the host country and the foreign tax administration), sources said. Transfer pricing of complex international transactions is generally negotiated under an APA. India introduced APA through Finance Act 2012 to provide transfer pricing certainty to the taxpayers.
On March 31, the authorities here signed 5 “unilateral APAs” making it one of the fastest turnarounds in transfer pricing history across the world. These agreements cover different industrial sectors like pharmaceutical, telecom and financial services. Generally, an APA is valid for up to 5 years and the Act provides for renewal, revision or cancellation of an APA under certain circumstances. During the 5-year period, the taxpayer is required to file an annual report to confirm compliance with the terms of the APA. The authorities then conduct limited audit of the taxpayer to ensure compliance with the terms of the APA.
As per the APA rules notified by the Finance Ministry in 2012, fee for entering into APA with the CBDT would be Rs 10 lakh for international transaction of up to Rs 100 crore; Rs 15 lakh for up to Rs 200 crore and Rs 20 lakh for transactions above Rs 200 crore.