Industry chamber Assocham today called for introducing fundamental reforms in transfer pricing regulations with in-built mechanisms for smooth negotiation and conflict resolution.

This will help avoid unnecessary litigation and reverse the risk of tax base erosion, Assocham said in a statement.

Radical changes are underway with the Direct Taxes Code likely to come into effect from next financial year (2012-13) but there is no formal mechanism for mediation under the law at present, it said.
Transfer price refers to the amount used in accounting for cross-border transfer of goods or services from one responsibility centre to another or from one company to another which belongs to the same group.

It is a mechanism for distributing revenue between different divisions which jointly develop, manufacture and market products and services, it said.

The transfer pricing disputes in India have so far involved officers and taxpayers locking horns on complex economic concepts relating to creation of intangibles, location savings and benefits commensurate with payments, it said.

A sizeable number of disputes arise solely on the ground of comparability or benchmarking analyses, it said.

Authorities should adopt the concept of inter-quartile range and median as better and more robust statistical tools, instead of arithmetic mean which produces biased results, he said in communication to the Finance Ministry, it said.

Case studies prove that most transfer pricing adjustments on account of comparability analyses actually take place due to peculiarities of Indian transfer pricing regulations rather than business realities, it added.