Tax authorities have finally woken up to pending transfer pricing litigation in India. The Income Tax Appellate Tribunal has decided to constitute separate benches in Mumbai, Delhi, Bangalore and Hyderabad to hasten the disposal of transfer pricing and international taxation cases.
Transfer pricing is primarily used by large companies for transactions between separate entities of the same group. Multinational companies, however, often misuse the system to transfer profits to subsidiaries in low-tax countries.
With about 3,500 disputes, India has the third-highest number of pending cases related to transfer pricing. These cases are pending with the Dispute Resolution Panel, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. According to Ernst & Young (E&Y), as of February 201, at least 1,500 transfer pricing disputes were pending in India. And, the number of such cases has doubled in the past 18 months. According to the Directorate of Transfer Pricing, there was mis-pricing of Rs 67,768 crore in 2010-11 and Rs 43,531 crore in 2011-12.
E&Y says based on current transfer pricing reviews, the top five jurisdictions are Japan, Canada, India, Germany and the United Kingdom (in that order). However, for the US, there are about six such cases, while for New Zealand, Taiwan and Singapore, there are no ongoing or pending cases for domestic appeal.
Setting up separate benches to hear such cases was recommended by a committee set up by the Income Tax Department. The committee had said, “About 10-15 appeals should be fixed for hearing before these benches every day, and all parties should extend the best possible cooperation to ensure maximum appeals are heard. Adjournments, if any, should be sought only under compelling and unavoidable circumstance and that, too, well in advance, with intimation to the other side.”
Officials say the Income Tax Department has decided to identify the common transfer pricing issues involved in many cases to try and ensure those cases are decided either by division benches or a special bench. The department would also try to identify issues with mutual consent and move appropriate applications for disposal of cases in which those issues are involved.