'Vivad se Vishwas': MNCs will have to bring all disputed amount to India

Else, the entire money will be considered as loan from subsidiaries on which interest will have to be paid

The subsidiaries of multinational companies (MNCs) can settle their transfer pricing disputes under the proposed Vivad se Vishwas scheme, but they will have to bring the entire disputed money to India.

Or else, the money not brought into India will be considered as loan from subsidiaries on which interest has to be paid.

According to the amendments to the Direct Tax Vivad se Vishwas Bill, the settling of disputes regarding transfer pricing adjustment would not have any effect on secondary adjustment. Secondary adjustment is repatriation of an excess amount MNCs keep after tax officers make adjustments.  

If an Indian subsidiary of an MNC provides some technical service to global headquarters, it shows in its books that Rs 100 crore is given by headquarters to it and pays tax on it. However, transfer pricing officers arrive at a conclusion that the service rendered is to the tune of Rs 110 crore and the subsidiary has to pay tax on Rs 110 crore. Now, this difference of opinion may be pending in some court or tribunal.  

This can be settled by paying tax on Rs 110 crore, but this entire amount will have to be brought to India. Otherwise, Rs 110 crore will be taken as loan to the MNC by the subsidiary and interest will have to be paid on it at the rate of 6 per cent a year. Alternatively, an all-time interest of 18 per cent, besides surcharge of 12 per cent, or a total of 20.16 per cent of Rs 110 crore, can be paid and the case settled.

Amit Maheshwari, partner at Ashok Maheshwary & Associates, said: “Thus, the declarant shall be required to repatriate the funds to India even if he goes for settlement.”

The intention seems to offer relief only for litigation and not from repatriating the funds, said Maheshwari. The scheme offers interest waiver, penalty, and prosecution for settlement of these disputes pending before the commissioner (appeals), income tax appellate tribunal, high courts or the Supreme Court as of January 31, 2020.

While a complete interest waiver and penalty will be given in case of payments made by March 31, an additional 10 per cent of the disputed amount will have to be paid later. 

In case of tax arrears pertaining to only disputed interest or penalty, 25 per cent of the disputed penalty or interest will need to be paid while settling appeals up to March 31, 2020, and 30 per cent if payment is made after that.