Transfer Pricing Norms Inflexible: Pwc

Transfer pricing regulations are being perceived as inflexible, with heavy documentation requirements. According to PricewaterhouseCoopers (PwC), these regulations pose a double whammy before Indian corporates arising from huge penalties and burdensome documentation.

According to Keith R Sparkes, director, transfer pricing, tax and legal services, PwC, transfer pricing regulations in India are quite inflexible. "Transfer pricing is not a precise science but an imprecise art. And the Indian regulations seem to ignore that," says Sparkes. He would be spearheading the transfer pricing team of the consultancy firm in India for the next 18 months.

The government has sought suggestions on the transfer pricing regulations from industry chambers and consultancy firms. The last date for submitting suggestions is May 25.

PwC's white paper has made several suggestions. First, Sparkes feels that the documentation requirements are very stringent. They expect an Indian subsidiary of a multinational company to furbish addresses and names of all their associates. "And that's quite an unreasonable requirement," he says.

For instance, IBM may have hundreds of group companies. But few of them may have anything to do with India. But the regulations require the Indian subsidiary of IBM to furbish addresses of all associates of IBM -- whether or not they deal with India.

"That means a lot of paperwork. And then the number of group companies can increase or decrease with each passing day," he adds. Especially when most of these names are not relevant to the Indian tax authorities.

Second, the regulations require companies to document all transactions with their associated firms. "That's also an unreasonable requirement. Worldwide, companies document their transactions in groups or classes," says Sparkes.

Another regulation requires companies to furbish accounts of their associates. "Typically, a parent company would not furbish all information to their subsidiary. And I am confident that an Indian company would not be able to comply with this requirement," he says.

It's easy to get information from a parent to a subsidiary, but not vis-a-versa, he adds. There is also little safe harbour. Documentation rules don't apply to companies that have a total aggregate transaction value of Rs 1 crore. "That's a fairly insignificant amount and very few companies will be able to take advantage of this safe harbour," says Sparkes.

According to him, there are two major issues -- is it possible to comply to such documentation requirements and is it relevant to comply to these requirements.

"Frankly, if there is no ownership or shareholder interest of a company in another, then the two companies are not associates in the true sense of the term. The Indian list of associates in the transfer pricing regulations is possibly the largest," he adds.