It is a well known fact that transfer pricing (TP) provisions have fuelled unprecedented litigation in India.TP provisions were introduced in India by the Finance Act, 2001, so as to protect India's right to collect a fair share of tax in respect of cross-border transactions. In simpler terms, TP provisions were introduced to ensure that an international transaction between two associated enterprises is made at arm's length price (ALP) so that both the countries involved get a proper share of tax revenue in their respective jurisdiction.It should be appreciated that India is a developing country with a lot of constraints. The international transactions in India are susceptible to international economic pressure. The profit margin in India does not often compare favourably with international margins. Therefore, the transfer pricing provisions in India have to take into consideration the economic realities prevailing in the country. However, the revenue authorities generally take a view

Transfer pricing deals: Compulsory scrutiny limit tripled to Rs 15 cr

Business Standard

In an effort to reduce transfer pricing ('TP') litigation, Section 92CA was introduced by the Finance Act (No. 2), 2009, authorising the Central Board of Direct Taxes (CBDT) to formulate safe harbour rules. By way of the above amendment, CBDT was empowered to frame safe harbour rules.Safe harbour rules are basically a set of directives or guidance on activities or margins whereby the revenue authorities should accept the pricing of a controlled transaction declared by the taxpayer without demur.The purpose of introduction of safe harbour concept was to give assurance to the taxpayers that proper leverage will be allowed to them in given situations and circumstances.After a long wait and on recommendations of the Rangachary Committee, draft of Safe Harbour Rules  have now been notified inviting comments from all stakeholders by August 26.The draft rules provide for an option either to adopt the rules or go for the normal TP provisions. Broadly, the rules notify for categories of the sec

Draft safe harbour rules disappoint

Revenue authorities have their own targets for tax collection. The targets are often based on the collections made in the earlier year without any regard to the estimated actual profits to be made by the tax payers. The tax officers are so obsessed to meet their targets that they do not hesitate to take coercive measures to collect more and more amount from the assessee.A situation often arises when the income-tax department raises a demand for tax from a foreign enterprise which the foreign enterprise pays even if it does not agree with the department. If the foreign company pays the disputed demand, then, upon success in appellate proceedings, it will get a refund along with interest.Further, income of foreign companies is generally subject to deduction of tax at source. The procedure for tax withholding is such that in innumerable number of cases more amount of tax is withheld than what is actually payable by the foreign company. The foreign company certainly becomes entitled for re

Tax refund made easy by Delhi High Court

AP High Court, in the case of Sanofi Pasteur Holding SA, said amendments made in the I-T Act do not nullify India's tax treaties

Tax treaties override Vodafone amendments

There are a large number of multinational companies operating in India. In case of multinational companies, it is a common practice that their employees are transferred from one country to other countries for serving offices situated in various countries. Since the rate of tax on salary income differs from country to country, therefore, whenever an employee is relocated, his prime tax liability would also be different.In such a situation, the employer normally gives an assurance to the employee that the employee will continue to receive the same salary that he would have received had he not been relocated to another country.This assurance is given by following the tax equalisation policy. Tax equalisation is one of the methods widely used by multinational corporations to ensure that their employees who are on international assignment do not suffer combined taxes on income (in home and host country) in excess of what they would have paid had they continued to reside in the home country.

India ensures tax equalisation for international posting

Finance Act, 2012, introduced the concept of Advance Pricing Agreements (APA). APAs are common in other developed countries.An Advance Pricing Agreement (APA) is an agreement between the taxpayer and the tax authorities on the pricing of international transactions between the taxpayer and its associated enterprises (AE). An APA provides certainty on the pricing to be adopted for the covered intercompany transactions. Further, a bilateral/multilateral APA eliminates the risk of potential double taxation arising from controlled transactions.The government has framed rules for APAs. Rule 10H is a very interesting rule which deals with pre-filing consultation. Every applicant is required to apply for pre-filing consultation. Pre-filing consultation shall, among other things, (i) determine the scope of the agreement (ii) identify transfer pricing issues (iii) determine the suitability of international transaction for the agreement (iv) discuss broad terms of the agreement.An assessee has an

Rule 10H on pre-filing consultation: A unique feature of Advance Pricing Agreements

Irrespective of the difficulties, taxpayers have to comply with the transfer pricing regulations and determine the arm's length price

Insurance valuation: A good benchmark for transfer pricing

When transfer pricing provisions were introduced in India in the year 2001, no tolerance limit was prescribed for adjustment in arm's length price (ALP). Thus any difference between the ALP, as calculated by adopting an appropriate prescribed method, with the actual transaction price of the assessee was eligible for addition to income of the assessee.Since calculation of ALP is merely an estimate, the ALP is bound to vary in different situations and circumstances. Therefore, a reasonable tolerance margin should be provided to take care of normal variations. The government realised its slip-up and the I-T Act was amended vide Finance Act, 2002, prescribing the tolerance limit of Â± five per cent under section 92C.The margin of five per cent was not found appropriate in many cases because of varying nature of transactions. That gave rise to litigation. The government took note of this fact in the year 2009 when the Memorandum to Finance Act, 2009, stated, "section 92C of the Income-tax A

Transfer pricing: Tolerance margin needs to be rationalised

The problem of black money in India has reached to a point that the entire political spectrum is committed to bring back the black money illegally stashed outside India. The Government of India is taking serious steps in this direction, including amendments in the tax treaties between India and other countries where the black money is expected to have been kept.The amendment to tax-treaties generally relates to exchange of information between India and tax-haven countries. In this process the government expects to collect information about the money as well as black money holders. The example of such amendment is a protocol signed with Switzerland in August, 2010. The said protocol was approved by Swiss Parliament on June 17, 2011 and it finally entered into force on October 10, 2011. Accordingly, in India, the provisions of the said protocol became applicable from April 1, 2012 and in Switzerland from January 1, 2012.The basic legal framework for exchange of information under various

Information sharing with foreign countries may help tackle black money

Transfer Pricing (TP) Provisions were introduced in India by the Finance Act, 2001. The TP Provisions were introduced with an intent to protect India's right to collect a fair share of tax in respect of cross-border transactions. In simpler terms, TP provisions were introduced to ensure that an international transaction between two associated enterprises is made at arm's length price, so that both the countries involved get a proper share of profits in their respective jurisdiction.Considerable time has elapsed since these provisions were introduced, but it appears that they are still at a nascent stage. Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD) recognises that "transfer pricing is not an exact science; it will not always be possible to determine the single correct arm's length price â€¦.. Also the choice of methodology for establishing arm's length transfer pricing will not often be unambiguously clear. In a difficult transfer pricing sit

R&D issues in transfer pricing clarified

Interest rates in India are quite high compared to the rates prevailing outside of the country

Libor - a good benchmark for transfer pricing

A welcome feature of Finance Bill, 2013, is that it does not contain retrospective amendments and does not seek to overrule pronouncements of Supreme Court. There are only a few proposals in the Budget relating to foreign enterprises. Our observations relating to some of the proposed amendments are as under:Dividend received from foreign companiesDividend received from foreign companies in which an Indian company holds at least 26 per cent equity shares is taxable at the concessional rate of 15 per cent as against the normal tax rate of 30 per cent. The concessional rate was introduced by Finance Act, 2011, for assessment year 2012-13. The period for concession was extended for one more year by Finance Act, 2012. Now Finance Bill, 2013, proposes to extend this concessional rate for one more year.In order to remove the cascading effect in respect of dividends received by Indian company from foreign subsidiary company in which Indian company holds more than 50 per cent of equity shares,

HP Agrawal: A mixed bag for foreign companies

Indian corporates have now started investing in foreign countries in multifarious ways. In many cases foreign subsidiaries are established by Indian companies. Sometimes the subsidiary company is not in a position to obtain finance overseas. Therefore, in order to fulfill the financial needs of the subsidiary, the parent company often provides financial support by way of a corporate guarantee to facilitate raising of funds by the foreign company abroad.

<B>H P Agrawal:</B> Guarantee commission under lens of transfer pricing

The issue for consideration is as to whether the royalty paid by the foreign manufacturers on manufacturing of the goods outside India could also be taxed in India if such goods are sold in India.  In terms of section 9(1)(vi)(c), royalty payable by a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India, is taxable in India because such royalty is treated as â€˜deemedâ€™ to accrue or arise in India in the hands of recipient of royalty.In an interesting recent case (ITA - 3700/D/2009), a US Company granted a non-exclusive and non-transferable worldwide license of its patents developed on CDMA technology to wireless Original Equipment Manufacturers (â€˜the OEMsâ€™) outside India to make, import, use and sell CDMA handsets and wireless equipment (the â€˜Productsâ€™) anywhere in the world. In consideration for the grant of licence, the

HP Agrawal: Is royalty paid by a non-resident to another taxable in India?

LG Electronics Inc, a Korean company, set up a wholly owned subsidiary in India (LG Electronics India Pvt Ltd). LG Korea provided its technical assistance to LG India for which it agreed to pay royalty at the rate of one per cent. LG Korea also permitted LG India to use its brand name and trade marks in relation to products manufactured in India. The use of brand name and trade marks were allowed on a royalty-free basis. LG India in the normal course of its business incurred certain advertising, marketing and promotion (AMP) expenditure for which payment was made to non-associated parties. The TPO held that the expenditure incurred by LG India resulted in promoting the LG brand owned by LG Korea and hence LG India should have been adequately compensated by LG Korea. In other words, the TPO made adjustments on account of expenditure incurred by LG India on AMP deeming that the expenditure has resulted in brand building of LG for which LG India should have been compensated by LG Korea.

HP Agrawal: Controversy on definition of international transaction

Transfer Pricing (TP) provisions were introduced in India by the Finance Act 2001. The TP provisions were introduced with an intent to protect Indiaâ€™s right to collect a fair share of tax in respect of cross border transactions. In simpler terms, TP provisions were introduced to ensure that an international transaction between two associated enterprises is made at an armâ€™s length price (ALP) so that both the countries involved get a proper share of profits in their respective jurisdiction. In order to determine the ALP, various methods have been prescribed which are based on OECD guidelines and international transfer pricing practices.

H P Agrawal

H P Agrawal

H P Agrawal

Transfer pricing deals: Compulsory scrutiny limit tripled to Rs 15 cr

Draft safe harbour rules disappoint

Tax refund made easy by Delhi High Court

Tax treaties override Vodafone amendments

India ensures tax equalisation for international posting

Rule 10H on pre-filing consultation: A unique feature of Advance Pricing Agreements

Insurance valuation: A good benchmark for transfer pricing

Transfer pricing: Tolerance margin needs to be rationalised

Information sharing with foreign countries may help tackle black money

R&D issues in transfer pricing clarified

Libor - a good benchmark for transfer pricing

HP Agrawal: A mixed bag for foreign companies

H P Agrawal: Guarantee commission under lens of transfer pricing

HP Agrawal: Is royalty paid by a non-resident to another taxable in India?

HP Agrawal: Controversy on definition of international transaction

HP Agrawal: Standard rules not the only method to calculate arm's length for TP

H P Agrawal: Guarantee commission under lens of transfer pricing