MNCs line up for transfer pricing pacts with tax authorities
April, 09th 2014
The tax department received 232 applications from MNCs in 2013-14, up 60 per cent year-on- year, to obtain advance ruling over pricing arrangement for transactions within group firms and the ensuing tax liability.
In 2012-13, 146 companies had applied for Advance Pricing Agreement, a mechanism that aims at curtailing disputes that may arise from transfer pricing issues between MNCs and the revenue department.
The issue of transfer pricing - transaction prices between separate entities of large firms - has generated much heat in India involving MNCs operating here such as Vodafone, Shell, WNS and Nokia.
Of the 232, 206 companies are seeking 'unilateral APA' (pact between tax payer and CBDT). The rest applied for 'bilateral APA' (pact between taxpayers, tax authorities of the host country and the foreign tax administration), sources said.
All the applications are being scrutinised by the tax department, sources added.
Transfer pricing of complex international transactions is generally negotiated under an APA. It is an agreement between a taxpayer and the tax authority (Central Board of Direct Taxes in case of India) on the transfer price of future intra- company transactions.
India introduced APA through Finance Act 2012 to provide transfer pricing certainty to the taxpayers.
"This huge spurt in the number of applications filed in the second year is a vote of confidence for the Indian APA programme by foreign investors," said Amit Maheshwari, Partner Ashok Maheshwary & Associates.
"Indian APA process is on track to become one of the very important risk mitigation tool for multi-national companies going forward," he said.
On March 31, the authorities here signed 5 'unilateral APAs' making it one of the fastest turnarounds in transfer pricing history across the world.
These agreements cover different industrial sectors like pharmaceutical, telecom and financial services.
The approach of the authorities was very pragmatic and collaborative as well, Maheshwari added.
Generally, an APA is valid for up to 5 years and the Act provides for renewal, revision or cancellation of an APA under certain circumstances.
During the 5-year period, the taxpayer is required to file an annual report to confirm compliance with the terms of the APA. The authorities then conduct limited audit of the taxpayer to ensure compliance with the terms of the APA.
As per the APA rules notified by the Finance Ministry in 2012, fee for entering into APA with the CBDT would be Rs 10 lakh for international transaction of up to Rs 100 crore; Rs 15 lakh for up to Rs 200 crore and Rs 20 lakh for transactions above Rs 200 crore.