Here is a list of Budget expectations from the transfer pricing perspective:

1. It is desirable that the Indian regulations recognize the use of inter-quartile range (instead of arithmetic mean) to determine the arm's length price for the international transaction entered into with associated enterprises (AEs), which would improve the quality of comparability analysis under the Indian TP regulations and also to mitigate unwanted and protracted litigation.

2. A primary solution to give life and force, in the practical sense of the term, to the mandatory TP documentation compliance to be carried out at the time of filing the tax return; and also save it from being rendered virtually redundant, would be to introduce the concept of mandatory usage of multiple years' data for the purposes of carrying out comparability or benchmarking analyses.

3. To make life simple for taxpayers the following changes to the Form 3CEB (reporting format) would be most welcome:

- (i)Explanatory Notes - Considering the issues surrounding reporting requirements, the taxpayer should be allowed to insert notes explaining its position.

- (ii) Summary of the transactions - During the past eight rounds of transfer pricing audits, it has been observed that transfer pricing adjustments are made vis-a-vis a transaction and not the Associated Enterprises (AEs). In light of the above, it would be advisable to revise the Form to enable tax payers to provide only summary of transactions (i.e. no detailed AE wise requirement as laid down in the existing Form). The existing detailed reporting requirements of the Form could apply only to selected cases (i.e., where AE is located in any country/territory notified under section 94A; or; in a no tax; or low tax country/territory.

Tax authorities can seek details of transactions during the assessments, if required.

4. Specified domestic transactions: - (i) The threshold for applicability of transfer pricing provisions to specified domestic transactions should be increased to Rs. 100 crores so as to focus on large taxpayers.

- (ii) It may be prudent to consider a wider range of profits earned by the comparable companies (viz. inter-quartile range) instead of arithmetic mean to evaluate whether the profits earned by the eligible taxpayer from the tax holiday undertaking are more than ordinary.

5. Income tax and customs work in divergent directions on the same transaction viz. import of goods/ raw material into the country. Whereas the Income tax authorities would want a lower value for the imports in order to give a lower deduction to the taxpayer thereby increasing the tax revenue, the customs authorities would want a higher value in order to increase the customs duty revenues. Accordingly, taxpayers who are dependent on imports are adversely impacted. Therefore, alignment of customs and income tax valuation would be important.

In order to address the situation, the following two alternative solutions could be considered:

Alternative 1 - The transfer pricing policy adopted by the transacting parties should be considered while giving the Special Valuation Branch order by the customs authorities. In such a situation to an extent both transfer pricing and customs would be aligned.

To explain further, where an Indian importer (whose import prices undergo a reduction post-year end - as a result of using actual/ updated price setting data), should be allowed post-importation downward adjustments to the customs value declared at the time of import, provided the adjustment is based on a transfer pricing policy or an Advance Pricing Arrangement (APA) which was in effect prior to importation.

Alternative 2 - If customs have arrived at a different value for the goods imported as against the one reflected on the invoice to levy the duty, the subsequent confirmation of the invoice value during transfer pricing assessment proceedings, which is in line with the transfer pricing policy of the group should be given due consideration and the taxpayer should be provided appropriate credit for the extra duty paid.