Aggressive stand on transfer pricing creating disputes: Parthasarathi Shome

Parthasarathi Shome, the veteran economist who's also official advisor to the finance minister, said on Monday that tax laws should not be amended retrospectively to get revenue.

Since the finance ministry has done exactly this, notably in the tax dispute with Vodafone, changing the law to cancel a Supreme Court verdict, the relevance is marked.

Shome was also clear, said industry body Assocham, at whose venue he spoke, that the aggressive stance taken by the tax authorities in some transfer pricing cases had disheartened assessees and led to complaints.

"There are three conditions under which retrospectively can be envisaged. One is to clarify, one is to correct for mistakes and the third one is to really address a very egregious tax structure but not to use it as a revenue generation," Shome said on the sidelines of a conference by industry body Assocham.

Shome has made these points before. He said retrospective application of tax laws should occur as an exception or in the 'rarest of rare' cases and with particular objectives. However, he softened his rap on official policy by adding the government could not be entirely blamed for having done so and a balanced view was required.

The Vodafone-impelled change in tax law with retrospective effect took place last year. The issue was the tax claim on the British telecom major's 2007 acquisition of Hutchison Whampoa's stake in Hutchison Essar. A committee set up under Shome later had recommended that either the retrospective amendment be withdrawn or the penalty/ interest in question be waived.

Transfer pricing adjustments are another cause for friction. The disputed values were Rs 70,000 crore in 2012-13, Rs 67,768 crore in 2011-12 and Rs 43,531 crore in 2010-11. Major companies with which tax authorities had disputes included Shell, Vodafone and Nokia.

Meanwhile, the Tax Administration Reform Commission, set up by the finance ministry to review application of tax policies and tax laws in India in the context of global best practices, had its first meeting on Monday and is to also meet on Tuesday. Shome chairs it and the first report is expected in six months. Thereafter, every three months it will come up with a report on a particular area.