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Change in transfer pricing regulations to help MNCs
February, 28th 2020

The Union budget 2020-21 has proposed to amend the Section 92CB of the Income Tax Act that empowers the Central Board of Direct Taxes to frame safe harbour rules for determination of the arm’s length price. The government has also sought to widen the ambit of Dispute Resolution Panel (DRP).

The budget has proposed changes in the transfer pricing provisions to enable nonresidents access the advance pricing agreement programme, or safe harbour regime. The move will allow multinational companies to ascertain income attributable to their Indian presence.

Currently, MNCs having taxable presence in India in the form of permanent establishment in the absence of Indian books of account have to grapple with uncertainty and litigation. Section 92CB of the Income Tax Act empowers the Central Board of Direct Taxes to frame safe harbour rules for determination of the arm’s length price.

The budget has proposed to amend this section. Tax experts say this will provide more certainty to foreign investors. “Attribution of profits to a permanent establishment of a foreign enterprise is a complex topic and results in disputes.

Extension of advance pricing agreement (APA) regime and Safe Harbour Rules to it would lead to more certainty to foreign companies,” said Amit Maheshwari, partner, India Tax Leader, Ashok Maheshwary & Associates LLP. “This will help the government garner revenues without the hassles of long-drawn litigation,” said Aparna Khatri, consulting director, Rajeshree Sabnavis & Associates.

The government has also sought to widen the ambit of Dispute Resolution Panel (DRP). “ In the Finance Bill, government has proposed to increase the scope of cases where taxpayers could approach DRP for resolution of their income tax disputes,” said Rakesh Nangia, chairman, Nangia Andersen. Earlier, only foreign companies (except transfer pricing cases) could approach the DRP. Now, option of DRP has been extended to all non-residents as well as a foreign company.

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