Industry body American Chamber of Commerce in India (AMCHAM) has asked the government to introduce Advance Pricing Agreement (APA) mechanism to check transfer pricing disputes in the forthcoming budget in case of delay in implementation of Direct Taxes Code Bill (DTC).

"...in case the implementation of the DTC is delayed beyond its stated effective date, APA be brought through the Income Tax Act itself," the chamber said in its pre-Budget memorandum to the Finance Ministry.

Chairman of Amcham's Committee on Tax and Tariff Ajay Kumar said, "The focal point of our submission is rationalisation and procedural simplification (of transfer pricing mechanism), which will ease compliance burden and cost for the multi-nationals without having significant revenue impact."

The APA mechanism will allow companies to enter into agreements with the tax authorities to prevent future disputes with regard to pricing of products and services for the purpose of cross-border trade between related entities. It is treated as an effective tool to achieve certainity on transfer pricing matters.

Multinational companies use transfer pricing as a tax saving tool to shift profits to countries with low tax rates. However, in the process country's lose tax revenue.

Although the DTC has made a provision for introduction of the APA mechanism, the new direct tax law is unlikely to come into force from April 1, 2012.

The DTC, which seeks to replace the Income Tax Act, 1961. is being scrutinised by the Parliamentary Standing Committee.

The Amcham also demanded that the government should consult the stakeholders before notifying the safe harbour rules under which there is certainty of taxation with regard to transfer pricing.

Finance Minister Pranab Mukherjee will unveil the budget for 2012-13 in the Lok Sabha on March 16.