Multinational companies can now look forward to expeditiously settling their tax disputes in India. The Central Board of Direct Taxes on Monday announced the new rules for creation of special dispute resolution panels (DRP) that will allow foreign taxpayers to sort out their tax disputes in a faster and cost effective manner.
However, the new mechanism could be resorted to by a foreign company only if it has a dispute with tax authorities regarding transfer pricing, that refers to tax disputes pertaining to pricing of tangible and non-tangible assets tranferred within an organisation.
A foreign company facing a dispute pertaining to corporate tax in India alongwith a transfer pricing would also be able to avail this window. There would be eight DRPs across the country in eight metros including Delhi, Mumbai, Chennai, Kolkata, Bangalore, Pune and Hyderabad. India had introduced tranfer pricing rules in 2001. Taxexperts say that the new DRP would not just ensure resolution of issues swiftly but also help in bringing down litigation related to transfer pricing.
With the constitution of DRPs, MNCs operating in India can forward to engage with them with a view to collaboratively resolve contentious issues to the extent possible, said Sudhir Kapadia, tax partner, Ernst & Young.
MNC taxpayers would allowed to go through the draft assessment order specifying their tax liability, before it is finally handed out unlike the present practice of handing out the order without giving taxpayer any such opportunity.
Taxpayer, will have 30 days to come back to the panel with objections and get the order amended. And, even if the order is passed by the panel, taxpayer would be allowed to appeal against the decision. However, the decision would be binding on the assessing officer handling the case. This mechanism will be in addition to the existing judicial remedy such as commissioner appeals.
The binding nature of the panels order on the assessing officer will help in reducing the burden of tribunal cases being initiated by the tax authorities, Shanto Ghosh, principal economist, transfer pricing, Deloitte Touche Tohmatsu India.