Govt notifies roll back norm under transfer pricing pact

Seeking to reduce litigations related to transfer pricing, the 'roll back' provision under the Advance Pricing Agreement has been notified that will enable companies to enter into APA with tax authorities for the previous four years.
Under the APA, introduced in 2012, companies could enter into an agreement with tax authorities for the next five years. Now, with the roll-back norms notified they can enter into such pacts for the previous four years as well.
The move aims at curtailing disputes that arise from Transfer Pricing issues between MNCs and the revenue department. It is a major area of litigation for both resident and nonresident taxpayers. Under this mechanism, parent companies sell goods and services to their subsidiaries that reduces their profits, lowering their tax liabilities.

The Central Board of Direct Taxes (CBDT) has announced rules for the mechanism that were proposed by Finance Minister Arun Jaitley in the July 2014 Budget speech.
"The introduction of APA roll back rules is positive and encouraging move that the government is giving an option to roll-back APA terms to all taxpayers even those who have already filed for APAs in the past or the handful of taxpayers who have already signed APAs with the government," said Rohan Phatarphekar, Head of Transfer Pricing, KPMG in India.
Amit Maheshwari, Partner, Ashok Maheshwary & Associates said that earlier one could have entered into APA for the future five years, but now it provides a nine year window.

"The rules are expected to provide clarity for previous cases and help in reduction of transfer pricing litigations".

In his budget speech in July 2014, Finance Minister Arun Jaitley had announced the introduction of roll back provision in the APA scheme so that such an agreement entered into for future transactions may also be applied to international transactions undertaken in previous four years.
The rules provide window of seeking rollback for APA agreements concluded or applications filed before Jan 1, 2015 if rollback request submitted before March 31, 2015
As per the rules, taxpayers along with those who intend to file fresh APA applications effective from financial year 2015-16 have to file roll back applications till March 31, 2015.

"The deadline of March 31, 2015 seems to be stringent and it would have been helpful if tax payers would have at least been given time till June 30, 2015," said Phatarphekar.