In the budget this week, the Indian government has proposed creating a mechanism to address transfer pricing disputes arising in the taxation of subsidiaries of foreign companies. Finance Minister Pranab Mukherjee said that in order to improve the investment climate in the country, the government needed to facilitate the resolution of tax disputes faced by foreign companies within a reasonable time frame.
To reduce the impact of judgmental errors in determining the transfer price in international transactions, the Central Board of Direct Taxes will be empowered to formulate 'safe harbour' rules. Under the mechanism, the tax officer would issue a draft order of assessment in respect of any variation in taxable income. The tax payer would have a time limit of 30 days to raise any objection with the dispute resolution panel and the tax officer. The dispute resolution panel would then issue appropriate directions for resolving the dispute within a period of 9 months.
The issue is a major concern among revenue authorities, who wish to stop multinationals from setting transfer prices on cross-border intra-group transactions at artificial levels in order to reduce taxable profits in their country. It is of particular interest to the IT/ITES companies in India.
This comprehensive report in our Intelligence Report series examines the global and national landscapes in which companies can use transfer pricing to improve their after-tax returns, including summaries of recent developments in design of the corporate supply train, the usefulness of 'offshore' in international corporate tax planning, and a section covering the spread of DTAAs and CFC laws. It is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report16.asp
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