Tax authorities get kudos from MNCs on transfer pricing

Indian tax authorities have one more reason to celebrate as multinationals feel that India is better armed with transfer pricing expertise than many other developed nations like the US, Germany, Brazil and Japan.

More than 50 per cent of the global companies, according to a survey on transfer pricing conducted by financial advisory firm Ernst and Young, feel that level of expertise of Indian tax authorities in dealing with the transfer pricing issues is very good.

According to the survey, 57 per cent respondent companies have expressed faith in the transfer pricing expertise of Indian authorities, which is significantly higher than the figures for developed countries including the US.

In case of the US, only 33 per cent of the respondent companies believe that American authorities have requisite expertise in dealing with transfer pricing issues.

The figure was lower at 32 per cent in case of Canada and 25 per cent for Brazil. The Transfer Pricing policies of several countries are based on the Organization of Economic Cooperation and Development guidelines on the subject.

Transfer pricing is the mechanism adopted by multinationals for valuing goods and services traded with their subsidiaries or associate companies abroad so as to lower taxes and maximize profits.

Based on the mechanism, the parent company values goods sold to their subsidiaries at a higher price in nations with higher taxes to show lower profits so that they pay less taxes.

To ensure that multinational companies do not pay less taxes, the yardstick of Arms Length Price is adopted, by which goods sold by these firms to their subsidiaries are taken as the goods sold to independent parties and valued accordingly.

WHAT IS TRANSFER PRICING?

Transfer pricing is the mechanism adopted by multinationals for valuing goods and services traded with their subsidiaries or associate companies abroad to lower taxes and maximise profits

Based on the mechanism, the parent company values goods sold to their subsidiaries at a higher price in nations with higher taxes to show lower profits so that they pay less taxes

The transfer pricing policies of several countries are based on the Organization of Economic Cooperation and Development guidelines on the subject