CBDT wants to hasten APAs with MNCs to reduce litigations

Board has so far entered into 31 APAs with Indian arms of foreign firms, with 11 being inked during last few days

For greater ease of doing business and to reduce litigations with MNCs on the tricky transfer pricing issue, the CBDT is making efforts to bring down "dispute" areas to hasten approval of over 500 applications for Advance Pricing Agreements (APA) pending before it.

APA, introduced in the Income Tax Act in 2012, provides for signing of an agreement between a taxpayer and the I-T department on an appropriate transfer pricing methodology for determining the value of assets and ensuing taxes on intra-group overseas transactions.

Transfer pricing transactions between separate entities of large MNCs have generated much heat in the last few years, including those involving Vodafone, Shell, WNS and Nokia.

MNCs are often accused of misusing the system to transfer profits to their subsidiaries in countries that have low tax regimes.

"The emphasis is to reduce these disputes (in inking APA agreements between the I-T department and business entities) as far as possible and to come to an agreement as soon as possible. The whole idea is that we want disputes to be reduced as far as transfer pricing matters are concerned," CBDT Member (Income Tax and Revenue) Atulesh Jindal told PTI.

The board had recently said it has so far entered into 31 APAs with Indian subsidiaries of foreign companies operating in various segments, with eleven of them being inked during the last few days.

"We would certainly like more and more persons to opt for the APA scheme. APA is quite effective when it comes to dealing with issues of transfer pricing and income tax as the agreement takes care of all disputes," Jindal, under whose charge the initiative is being undertaken, said.

He added the response of the contracting business entities has been "fairly encouraging".

The top CBDT official said the department, till now, has received a total of 580 applications for APA agreements and the taxman is trying to finalise at least 30-40 more such pacts by the end of this financial year.

The Indian law requires that goods and services be sold

to subsidiaries by parent companies at arm's length price--the price at which goods are traded between unconnected companies.

At times, Jindal said, despite best efforts, an agreement does not materialise quickly as there are many issues involved.

"It (signing a mutually acceptable APA) is a time consuming process. We have to carry out extensive negotiations as so many issues are involved...After all, these are matters where you know the difference of opinion is there. But we are taking steps to make sure that both the sides can soon arrive at a mutually acceptable agreement," he said.

Jindal said a number of APAs, under the 30-40 likely to be concluded this fiscal, are at various stages of finalisation.

The current fiscal has seen a quantum jump in MNCs and other large internationally operating corporates entering into APAs with Indian tax authorities. 22 such pacts have been inked during the current fiscal so far as compared to four in the last fiscal and five in the one prior to that.

"We at CBDT would want to emphasise that APAs also allow for a roll back provision and hence any business entity, which even registers today, will stand to benefit for nine years while computing their tax liability (4 years behind and 5 years in the future)," he said.