Union Budget 2014: Govt offers truce in transfer pricing battles via rollbacks

In a move that will substantially reduce litigation in the transfer pricing arena, a roll-back relief provision has been introduced for advance pricing agreements. In other words, the arm’s length price determined under an advance pricing agreement (APA) will also apply to past transactions. Multiple-year data will also be used in comparability analysis for determining the price

India Inc can now be certain for a period of five years on the pricing of transactions with its overseas group companies.

The roll back relief provisions could apply for the four years preceding the first year for which the ruling was obtained.

“APA authorities view the taxpayers’ contention with an open mind, based on the functions that are carried out, the assets utilized and risks borne. Site visits help them get the correct picture. Thus the roll back benefit is welcome,” says Hitesh Gajaria, transfer pricing expert. “Often, APAs addresses issues which are under dispute for the past several years. When the outcome as agreed in an APA can apply to prior years, it would be beneficial to both tax payers and tax authorities,” said Samir Gandhi, partner, Deloitte.

However, as of date, there are over 350 pending APA applications. APAs were introduced by the Finance Act, 2012. Till date, five agreements have been signed by the CBDT covering a wide range of international transactions including interest payments, corporate guarantee and contract manufacturing. More officials will have to be deployed to successfully dispose of these pending applications, is the general verdict of tax experts.

In order to align India’s transfer pricing regime with best available practices, the “Range” concept will be introduced as the Arm’s Length Standard.

TOI: July 11, 2014

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