Govt eases transfer pricing dispute settlement

In a move to reduce litigation and boost investor confidence, the central government has decided to allow access to a bilateral forum for transfer pricing (TP) disputes, for all tax partner countries.

 The move to accept applications for bilateral advance pricing agreements (APAs) and mutual agreement procedures (MAPs) is expected to benefit a number of multinational companies that are based in important trade partners.

The government has said that even if a tax treaty with another country does not contain the provision of corresponding adjustment in matters of TP, it would still entertain bilateral MAPs & APAs with such a country. This does away with the requirement to amend tax treaties to remove such a deficiency. 

An MAP allows the governments of the two countries to interact with the intent to resolve tax disputes. An APA is basically an ahead-of-time understanding between a taxpayer and the tax authority on an appropriate TP methodology. Bilateral APAs involve the taxpayer, its local subsidiary, the Indian tax authority and the country the company is headquartered in.

The revenue department had earlier taken a position that unless a tax treaty contained a provision of corresponding adjustment in TP matters, applications would not be accepted for bilateral MAPs and APAs. 

“This was in contrast to the guidelines of the OECD grouping. As a result, several important trade partners of India, e.g France, Germany, Italy, Singapore, South Korea, etc, had been outside the ambit of bilateral APAs & MAPs in matters relating to TP, in view of such a deficiency in their tax treaties with India,” said Rahul K Mitra, partner at consultants, KPMG India. 

The government had inserted the provision in revised tax treaties with Singapore & South Korea that took effect from April 1, 2017. 

Kunj Vaidya of consultants PwC India said it was an extremely welcome move, as this had been a key impediment for companies to resolve double tax situations. “This aligns us to minimum standards as per BEPS (base erosion and profit shifting strategies) action plans... a big step to showcase our commitment towards this programme and it will surely further the ease of doing business in India,” he said. 

MNCs from two important trade partners, France and Germany, would be the immediate beneficiaries, Vaidya added.