Since the introduction of Transfer Pricing (TP) law in 2001, many changes have been introduced such as use of multiple year data, range concept, setting up of Dispute Resolution Panel (DRP) and Advance Pricing Agreements (APA). Nevertheless, transfer pricing remains an area of concern to businesses seeking certainty in tax outcomes.
In 2012, India had the third largest cases of transfer pricing in the world. The large number of annual audits and disputes are not only a cost to the private sector but also clog administrative and judicial work flow. Therefore, it is in interest of the taxpayer and the administration to minimise such disputes.
In this regard, NASSCOM along with National Institute of Public Finance and Policy (NIPFP) conducted a roundtable discussion on October 3, 2019 to identify issues in TP domain for IT companies. The roundtable was well received by members.
The discussion points emerging out of roundtable discussion are provided below:
- Advent of globalization and increase in cross-jurisdictional operations has resulted in concerns over pricing of intra-group transactions. Contentious issues include selection of comparables and methodology adopted for benchmarking.
- The discussion focussed on the average duration taken to adjudicate TP disputes and the role of Alternative Dispute Resolution Mechanism. As per the study, introduction of the DRP also contributed to a decline in duration of these disputes.
- However, the system still requires reforms with regard to repeated disputes on identical grounds and poor success rates for the revenue authorities.
- Bilateral APAs take a long time to conclude. But once done, it works smoothly.
- Companies, are of the view, that markups that are necessary to secure an APA is higher. This remains as one of the biggest reasons for many companies not using the option.
Based on the discussion, NASSCOM will engage with NIPFP to present a road map to Ministry of Finance for addressing the concerns relating to transfer pricing disputes.