Centre prepares draft to include ‘range’ concept in transfer pricing

 The Dollar Business Bureau In an effort to make international transactions more convenient, the finance ministry has proposed a new rule for determination of arm’s length prices of any goods or services exchanged between multi-national companies in India and their units abroad. The Income Tax department has already prepared a draft of the proposed rule which seeks to change the method used to calculate taxes on such transactions. The move came in the wake of a number of incidents of tax avoidance through manipulation of transfer pricing regime by companies having business in India and other countries. The Finance Ministry has sought comments and suggestions on the draft scheme of the proposed rules for computation of arm length price (ALP) of international transactions or specified domestic transactions by May 31. The draft seeks to amend the provision of Income Tax Act relating to transfer pricing regime. The purpose of amendment of section 92C (2) of the Finance Act was to facilitate introduction of “range” concept for determination of arm’s length price, the ministry said in a statement. The new rule will also incorporate the use of multiple year data for comparability analysis in the transfer pricing regime. “The use of multiple year data and range concept in transfer pricing regime is proposed to be incorporated through amendments to be made to Income Tax Rules, 1962,” the ministry said. The draft outlines of the new regime has been formulated and uploaded on the websites of the finance ministry www.finmin.nic.in and the Income Tax department www.incometaxindia.gov.in for comments from stakeholders and general public. The move is considered as an effort of the central government to encourage overseas investors in the country. In the recent past, imposition of minimum alternate taxes with retrospective effect, taxes on transfer pricing and other rules have proved detrimental for the flow of foreign investment in India. Around 500 cases related to transfer pricing have been pending between the income tax authorities and multinational companies. In his budget speech in July, Finance Minister Arun Jaitley had said that the "range" concept and use of “multiple year data” will be included in the transfer pricing regime.    

May 22, 2015 | 6:00 pm IST.