Relief in sight for MNCs as govt moves to expedite resolution to tax disputes
New Delhi: Aimed at reducing the number of tax disputes India is involved in with top multi-national companies, the government is now looking to expedite the resolution process and do so aggressively.
Government officials, reports said, have set an ambitious target of signing 100 Advance Price Agreements (APAs) with MNCs this fiscal. A resounding 62 of the 64 APAs that has entered into so far came during the last two years, with a record 55 formalised during the 2015-16 fiscal.
In the Indian context, an APA can mainly be described as an agreement between a multinational and the apex tax authority, the CBDT, where the transfer pricing methodology is determined.
The methodology to calculate taxes could then be used for an agreed period of time on the MNC’s future international transactions.
Transfer pricing disputes have been a huge roadblock towards India’s bid to improve its business environment and promote it as a favourable destination for much-needed foreign investments. Transfer pricing pertains to the profit tabulation of multinational companies and how they have been shifted to their parent.
India, in the past few years, has witnessed many firms approaching courts to contest the the government's transfer pricing calculations. In July 2012, the government introduced the APA programme, which allows companies and the revenue authorities to negotiate the rate at which tax is to be paid and avoid disputes.
Of the total APAs signed last year, 53 were unilateral agreements while two were bilateral agreements. While the former relates to the signing of an agreement between the company and the CBDT, the latter also involves the tax authority of the country where the firm is headquartered.
The central government with Prime Minister Narendra Modi at the helm has in the past two years taken several measures to change India’s aggressive stand on transfer pricing issues. Two major developments indicate the shift in stance.
"One is the government's agenda of having a non-adversarial tax regime and improving the ease of doing business, which has resulted in lesser amount of transfer pricing adjustments, and the other is the CBDT circular clearly laying out the guidelines as to when a case needs to be referred for transfer pricing assessment which has reduced the overall number of cases picked up for scrutiny," Rohan K Phatarphekar, partner and national head, global transfer pricing services, at KPMG told the Economic Times.
The change in stance also comes at a time when experts expect a rise in the number of tax related disputes globally. Major economies, they say, could see a spike in transfer pricing disputes with the introduction of new regulatory frameworks like the Base Erosion and Profit Shifting (BEPS).
There are about 650 pending cases with the APA, a Deloitte report said.