Cabinet approval of the Direct Taxes Code (DTC) Bill will witness a step towards a positive development in Transfer Pricing, a major concern for multinational companies operating in India.
"DTC will bring some good news on transfer pricing issues and with Cabinet approval we hope that the proposed Advance Pricing Agreements (APA) will take shape in due course," PricewaterhouseCoopers (PwC) associated director-transfer pricing said.
Transfer pricing means the adjustment of charges done between related parties for goods, services, or use of property.
"DTC recognises need for APA, but it does not mention whether it will be unilateral or bilateral agreement. Bilateral APA will be more helpful," he said.
In developed countries, such agreements either unilateral or bilateral, were entered into by taxpayers with one or more national tax authorities in advance for usually between 3-5 years, PwC national leader on transfer pricing Rahul K Mitra said.
Bilateral agreements were struck between tax authorities of countries and the unilateral one between an individual company and the tax authority of a country in which it was operating.
APAs are the agreement done between the taxing authority and the tax payer for a set of transactions.
APAs were treated as an excellent tool to achieve certainty on transfer pricing matters as would do away with the current system scrutiny for all tranactions above a threshold limit of Rs 15 crore.
Transfer pricing, simply put, was the art of pricing cross border transfer of goods and services that took place between companies belonging to the same multinational group.
More than 60 per cent of global trade took place between related parties (companies within the same group).
Till 2006-07 an estimated Rs 30,000 crore was involved in transfer pricing adjustments.