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More than 100 transfer pricing disputes with US firms resolved under tax treaty
January, 28th 2016

More than 100 transfer pricing disputes have been resolved under the mutual agreement procedure, or MAP, clause of the double taxation treaty between India and the US over the last one year, the income-tax department said in a statement on Thursday.

The Central Board of Direct Taxes (CBDT) had signed the framework agreement with the revenue authorities of the US in January last year under the MAP provision to boost investment sentiment among multinational companies. The agreement sought to resolve about 200 past transfer pricing disputes between the two countries in the information technology (software development) services and information technology-enabled services segments.

Transfer pricing refers to the practice of arm’s length pricing for transactions between group companies based in different countries to ensure that a fair price—one that would have been charged to an unrelated party—is levied. It has been an area of increasing dispute in India but of late the government has brought in a number of steps to reduce disputes.

“More than 100 cases have already been resolved and some more are expected to be resolved before the end of this fiscal,” the tax department said in a statement.

In addition, India will also soon be a part of the bilateral advance pricing agreement (APA) programme of the US.

“Prior to resolution of disputes under the framework agreement, the US bilateral APA programme was closed to India. The success of the framework agreement in short period of one year has led to the US revenue authorities opening up their bilateral APA programme to India. The US is expected to begin accepting bilateral APA applications shortly,” the statement said.

APA is an agreement between a taxpayer and the tax department on a transfer-pricing procedure for a particular set of transactions. India notified this programme in 2012.

Besides US, the government is also working on MAP programmes with Japan and the UK.

“The MAP programmes with other countries like Japan and UK are also progressing well with regular meetings and resolution of past disputes,” it said.

The tax department is confident that a “combination of a robust APA programme and a streamlined MAP programme would be helpful in creating an environment of tax certainty and encourage MNCs to do business in India”, the statement added.

 
 
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