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Government proposes separate unit for disposal of transfer pricing case
December, 18th 2014

India is proposing to set up a dedicated dispute-resolution unit for expeditious disposal of transfer pricing cases that have in the past few years evoked strong reaction from domestic and international investors, with some dubbing this 'tax terrorism'. Through this measure, the new government hopes to send out strong signals of a non-adversarial and investment-friendly tax regime.

"We are proposing to create a separate vertical for a disputeresolution panel with dedicated manpower. This will be a big step," revenue secretary Shaktikanta Das said at an international tax conference held by the Confederation of Indian Industry on Wednesday.

Transfer pricing refers to the pricing of assets, tangible and intangible, services, and funds transferred within an organisation in a cross-border transaction. Tax administrations usually apply stringent rules to prevent transfer of income from high-tax jurisdictions to low-tax ones through such pricing to escape or lower tax.

The proposed resolution units will have dedicated manpower dealing with these issues, free from the pressure of revenue targets. Such attempts were not successful earlier because officials had to also keep an eye on revenues while making transfer-pricing decisions.

Das said the government is looking at various taxpayerfriendly measures aimed at improving the overall business environment in the country as also to give it an edge. "We are carrying forward the tax reform agenda in line with the Make in India initiative. Tax reforms are needed to lend competitive advantage to India," he said, adding that a number of instructions aimed at reducing litigation among others had already been issued.

"We have asked tax authorities that high-pitched assessments without proper basis must be avoided... Also, if a case is taken up for scrutiny, then assessing officers have been asked to raise queries only related to that subject and not to indulge in fishing (expeditions)," he said.

He also pointed out that a separate vertical has been created to deal with income tax exemptions to ensure that they are utilized properly in line with their inherent objective. "The whole effort is to change the thinking and functioning of the department. It has to be an enabling department. We are looking to expand 24x7 customs clearances for ease of doing business," he said.

He said the government is keen to create a predictable regime with a moderate tax rate structure and is looking at the issue of inverted duty--inputs at higher duty and final product at lower duty--particularly in view of free-trade agreements, which have made the task more challenging.

The revenue secretary also took a dig at the industry for seeking dramatic reforms, ignoring the series of measures the government has taken to revive business sentiment and make the regime taxpayer friendly. "What are Big Bang reforms? These measures in totality will contribute to the revival of jobs," Das said, adding that withdrawal of one tax measure won't change things.

Pointing that the government is committed to fighting black money and its generation, he said dealing with domestic unaccounted money is also a challenge, although there has been greater clamour about such amounts stashed in overseas accounts.

"As part of this exercise, we are renegotiating treaties for limitation of benefit," he said. ET reported earlier that the government is attempting to renegotiate tax treaties with Cyprus and Mauritius to limit benefits.

"World over it is happening... G-8 is doing it... We are looking at issues of capital gains, harmful tax practices," he said, adding that the government is also considering ways of widening the tax base with country's tax to GDP ratio remaining stagnant.

Das said the goods and service tax (GST) could be a game changer of vast proportions. He said though services contributed 60 per cent to the country's GDP its contribution to revenue is not commensurate.

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