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India, Japan to sign advance-pricing agreement to untie tax hassles
October, 10th 2014

India and Japan will soon sign an advance-pricing agreement (APA), a move that will provide certainty to investors at a time the country is looking to attract big Japanese investment.

"I am happy to mention here that APA between India and Japan in a particular company's case has been finalised and it would be inked very soon," revenue secretary Shaktikanta Das said at an event on Thursday. "So, this will bring lot of clarity between our tax perception and the activity of that particular company. And the agreement is between tax authorities of India and Japan."

Das, however, did not name the Japanese company signing the APA. He said it augurs well for investors from Japan who are looking at India following a very successful visit there by PM Narendra Modi. The government has so far received more than 378 applications from companies for the mechanism, which will allow MNCs to seek guidance on pricing of goods and services in advance.

An APA, usually for five years, is signed between a taxpayer and the tax authority ( CBDT) on an appropriate transfer pricing methodology for determining the price and ensuing taxes on intra-group overseas transactions.

Transfer pricing — transaction prices between separate entities of a large company — generated much heat in connection with investments by large MNCs like Vodafone, Shell, WNS and Nokia.

MNCs are often accused of misusing the system to transfer profits to their subsidiaries in countries that have low tax rates. The law requires that goods and services be sold to subsidiaries by parent companies at arm's length price, the price at which goods are traded between unconnected companies.

Taxing these units has become a complex area for the revenue department, with the government often disagreeing on the profits declared by a foreign company for its Indian unit.

Das said the government is committed to providing "fair, stable and predictable" tax regime that does not have any room for ambiguity and the Budget 2014-15 is a starting point.

"Lot of predictability has been brought in with this budget," he said, adding that the government has clearly said there will be no retrospective change in the tax policy that creates fresh tax liability. But, he said, it has to be a partnership between the industry and the revenue department.

"We need to move away from aggressive tax planning vis-a-vis aggressive tax assessment. We need to find resolution.

The whole perception of aggressive taxation is centred around 7-8 cases. I would not like to go into those cases as they are in various stages in different courts," he said.

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