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India Gears Up For Transfer Pricing Changes

by Mary Swire,, Hong Kong

17 May 2011

Tax experts in India have called for the country’s transfer pricing system to have in-built mechanisms for smooth negotiation and conflict resolution, as radical changes are underway for the Direct Tax Code (DTC), most likely coming into effect from April 1, 2012.

There is no formal mechanism for mediation under the law at present, says the Director General of Income Tax R N Dash. Addressing a conference organized by the Associated Chambers of Commerce of India (ASSOCHAM), Dash said that transfer pricing cases will now be subject to audit by the Comptroller and Auditor General (CAG) of India.

Transfer pricing refers to the amount used in accounting for the transfer of goods or services between associated companies. It is a mechanism for distributing revenue between different divisions which jointly develop, manufacture and market products and services.

Indian authorities are currently examining various models with a view to forming new rules and formats aligned with best international practices so that they can be put in place when the DTC is implemented from the next financial year, said Dash. He added that advance price agreement mechanisms should reduce litigation in the future.

Rahul Mitra, National Head of PwC India, said that fiscal demands aggravated by a downturn place significant pressure on governments to raise revenue and prevent tax base erosion. On the other hand, multinational enterprises face constant competitive pressure to structure global operations effectively and efficiently by achieving lower costs.

This results in a substantial increase in the number and size of audits, adjustments and disputes. Nearly 70% of global transfer pricing litigation emanates from India, said Mitra.

Senior advocate O P Vaish added that transfer prices are significant for both taxpayers and tax administrations because they determine in large part the income and expenses, and therefore taxable profits, of associated enterprises in different tax jurisdictions.

It was also said that robust documentation and analysis around potential comparable uncontrolled prices (CUPs) will become increasingly essential as compliance parameters are followed vigorously.

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 and a description of the report can be seen at
TAGS: compliance | tax | business | India | law | accounting | corporation tax | audit | group taxation | multinationals | transfer pricing

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