It is better late than never. Tax authorities have woken up to the issue of pending transfer pricing litigations in India.
The Income-Tax Appellate Tribunal has decided to constitute separate benches in Mumbai, Delhi, Bangalore and Hyderabad to speed up disposal of transfer pricing and international taxation cases.
Transfer pricing is mainly used by large corporates for transaction prices between separate entities of the same group. Multinationals, however, misuse the system to transfer profits to their subsidiaries in low tax countries.
With about 3,500 disputes, India has the third largest number of pending cases related to transfer pricing in the world. These are pending with Dispute Resolution Panel (DRP), Commissioner of Income Tax (Appeals) and ITAT. According to Ernst & Young (E&Y), at least 1,500 transfer pricing disputes were pending in litigation in India, as of February 2011 and cases have doubled in the past 18 months. As per the Directorate of Transfer Pricing, there is a mis-pricing of Rs 67,768 crore in 2010-11 and Rs 43,531 crore in 2011-12.
Based on the current caseload of transfer pricing reviews, the top five jurisdictions (in order) are Japan, Canada, India, Germany and the United Kingdom, says E&Y. However, in the US, this number is less than six and in countries like New Zealand, Taiwan and Singapore, there are neither any ongoing nor any pending cases for domestic appeal
Setting up of separate bench to hear cases in India was recommended by a committee, set up by I-T department to suggest a solution to the problem.
The committee further said, "About 10 to 15 appeals should be fixed for hearing before these benches Benches every day and all the parties to extend the best possible cooperation to ensure that maximum appeals are heard. Adjournments, if any, to be sought only under compelling and unavoidable circumstance and that too well in advance with intimation to other side."
I-T officials say the department has decided to identify the common transfer pricing issues involved in many cases to that effort can be made to get the same decided either by a division benches or by a special bench, as may as thought fit. As assured by the representatives of the bar and department representative (DR), they will make combined efforts to identify such issues with mutual consent and to move appropriate applications for disposal of the cases where these issues are involved.
Initially, two benches will function in Mumbai from 1st Oct. 2012 i.e. “K” bench and ‘L” bench and the third “J” bench will start functioning from January 2013. The I-T department in the next four months will have to ensure that sufficient DRs are posted to argue the appeals fixed before these benches.
Further, in Mumbai from this month itself till October 2013 the "K" bench will hear only transfer pricing matters while “L” Bench will hear only international taxation matter. From January 2013 the three Benches i.e. “J” “K” and “L” will hear both matters. In all other centers the concerned vice-president/senior members will convene the meeting of representative of department and assesses to decide the similar action plan after taking into consideration their suggestions or problems.