India Delays Rules On Transfer Pricing Disputes

by Mary Swire, Tax-News.com, Hong Kong

11 November 2009

Two deadlines for introducing measures announced in the 2009-10 Indian budget concerning dispute resolution and 'safe harbor' rules with respect to transfer pricing disputes have been missed.

Rules governing the operation of dispute resolution panels and 'safe harbor' guidelines, under which the basis of transfer pricing of goods and services between related companies can be pre-agreed, were due to be operational by October 1, but now even a later October 30 deadline has slipped.

According to the announcements made at the time of the budget, there were to be five panels established across the country to decide on tax liability in disputed cases for non-resident companies, the main issues under contention being transfer pricing related. Taxpayers would be allowed one month to appeal against a tax assessment before a three-member panel.

The panel's decision made within eight months would then be binding on the tax authority but not on the taxpayer, who still has the option to appeal. The panels, which may be located in Delhi, Mumbai, Kolkata, Chennai and Bangalore, would not be able to rule on penalties. The removal of the right of appeal on the part of the authorities is expected to reduce considerably the extent of litigation passing through the ordinary courts, and, if successful, the system may be extended to include domestic taxpayers.

'Safe harbor' guidelines have also not been issued by the October 30 deadline. These were intended to reduce extended litigation on transfer pricing matters by setting up a mechanism by which a multinational company could pre-agree its intra-company pricing policies with the tax authorities.

According to reports in the Financial Express, officials from the Central Board of Direct Taxes have indicated that the guidelines would be published this November.

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