BCIC advocates relook at 'transfer pricing' regulation

The implementation of ‘Transfer Pricing’ regulations needs a relook as most of the disputes on tax from global business community is on transfer pricing, according to the industry body Bangalore Chamber of Industry and Commerce (BCIC) Chairman Direct Taxes Expert Committee K R Sekar.

Delivering his address on ‘Transfer Pricing - is it time to relook at implementation’ at a seminar organised by BCIC here on Thursday, Sekar exhorted that, “Failure to settle the issue at the lower level leads to increased burden both on tax administration and tax payers.”

Tax payers need certainity on pricing of transactions and in the absence of certainity disputes continues to increase. The amount of disputed tax before various authorities is almost more than Rs 1 lakh crore. Hence, if the administration of transfer pricing is in right and fair manner most of the disputed tax can be collected, Sekar said.

As the government has introduced the Advance Pricing Agreement (APA) it is essential on the part of the government that APA as an institution delivers goods because global investors are keen to resolve the transfer pricing disputes.

“In this context the APA and delivery of goods by APA institutes is a key factor for improving India’s image across the globe,” Sekar added.

The Ministry of Finance and Central Board of Direct Taxes (CBDT) should relook at the functioning of Dispute Resolution Panels (DRP). The members of DRP should have necessary powers to resolve disputes and not merely confirming or deleting the adjustment proposed by the ‘Transfer Pricing’ officer at assessment level.

BCIC Co-Chairman Direct Taxes Expert Committee and Wipro Ltd GM-Corporate Taxation K Balasubramanian said, “Transfer Pricing continues to be a significant source of controversy between the tax authorities world over and multi national companies.”

“Despite various clarifications and notification of safe harbour provisions by the Indian Government, resolution seems to be far from over. In fact, for the Indian MNCs which hold 100 per cent in its subsidiaries outside India, Transfer Pricing (TP) may be completely irrelevant as the effective tax collected on such TP adjustment is less than 5 per cent of the income adjusted.

Ultimately, higher TP adjustment erodes the Indian MNC’s investment base in such subsidiaries which will in turn reduce the tax payout to the Indian Govt at the time of liquidation of the investment or repatriation of profits. Litigation on these matters does not justify the administrative costs both for the Tax payer and the Tax Administration” Balasubramanian said.

Balasubramanian urged the government to look at implementing consolidated return filing provisions so that TP legislation for Indian MNCs can be scrapped.

Deloitte Senior Director R Muralidharan said, “There is an urgent need for a common approach to valuation of imports for transfer pricing and customs purpose so that once the valuation is accepted by one authority the same is accepted by the other also. The government should look at legislative amendments to facilitate this.”