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Cross-border tax issues to new panel
May, 11th 2010

A host of companies from Mumbai, said to be 367 in number and mostly multinational in nature, have moved the recently set up dispute resolution panel (DRP) to resolve issues related to cross-border taxation. An official in the I-T department said except two, all of the companies have chosen DRP instead of the conventional channel of appeal that of approaching the commissioner (appeal).

Moving DRP has a distinct advantage as the tax department cannot recover tax pending the DRP verdict. Around Rs 10,000 crore has been locked up in disputes because of the rule that binds the department to wait until DRP gives its verdict, another tax official said.

However, DRP adjudicates issues related to cross-border taxation within nine months of filing an appeal and therefore is faster than the office of the commissioner (appeal), which may take up to five years for deciding on an appeal.

The provision for DRP was incorporated in the previous Budget, for faster resolution of disputes involving foreign companies or transfer pricing. The decision of the DRP is binding on the Income-tax department and it cannot move the second appellate forum, the Income-tax Appellate Tribunal (ITAT), against the DRP verdict. However, the taxpayer is free to move the ITAT, if it so choses.

The issues that come under the purview of DRP include transfer pricing, all matters related to cross-border taxation such as disputes over existence of permanent establishment (PE), attribution of profits to a PE, characterisation of income and income computation method.

The constitution of DRP is expected to enhance the image of the countrys tax judiciary. Such a positive image is critical as global corporates hesitate to venture into a country that does not have a credible judicial system.

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