Govt likely to review transfer pricing norms

The government is learnt to be taking a fresh look at the transfer pricing norms for non-fund based activities undertaken by companies operating in India for their overseas parents.

According to industry sources, the tax department has found many cases where foreign companies operating in India have under-valued their fees or charges for non-fund based activities rendered to their parent abroad. The list includes both non-financial corporations and foreign banks.

The government has set up a committee to lay out specific guidelines for pricing of such transactions.

There is one more area where the regulators have found gross violations in tax computation "" repatriation of funds by banking entities overseas.

While doing so, customers should furnish either a certificate from the tax authorities or a chartered accountant for seeking tax exemption.

However, the income tax department has found that the chartered accountants have been lax in scrutinising the details before certifying such exemptions, sources said.

In fact, the income tax department has made a representation to the

Reserve Bank of India. It wants banks to closely monitor such certificates before repatriating the funds.

The transfer pricing norms for fund-based activities like loans or equity are very clear and there is no scope for discrepancy. However, for non-fund based activities like advisory services, etc., the rules are not clearly spelt out. Taking advantage of this, the pricing often undervalues real charges.

While the income tax department has forwarded the cases of violation to the Reserve Bank of India, the apex bank has submitted the cases to the government. Sources said, once the rules are laid down, the RBI will finalise the circular for the banks as well.