Govt eases tax norms to reduce transfer pricing disputes

The Dollar Business Bureau

As part of its efforts to simplify the taxation norms, the government on Tuesday amended the Income-tax Act to reduce ambiguities in domestic and international transfer pricing cases. The changes are aimed at establishing a transparent transfer pricing policy and send a positive signal to investors. “The Income-tax Act provides for determination of income having regard to Arm’s Length Price (ALP) in case of international transactions and specified domestic transactions. The amended rules would therefore provide clarity in determination of price in transfer pricing cases and reduce disputes on transfer pricing issues,” the Ministry of Finance said in a statement. The amended rule will be applicable for computation of ALP on all international transactions and specified domestic transactions carried out on or after April 1, 2014.  The new policy introduces a ‘range concept’, based on a statistical tool; and determines ALP and “use of multiple year data” for comparing and analysing transfer pricing cases. It also enhances the reliability of analysis undertaken for computation of ALP. The range concept will be used to determine the price in certain cases and will range between the 35^th percentile and the 65^th percentile of the comparable prices. The new policy will enable investors to compare prices with that of equivalent organisations and set a pricing target within the ALP. “Transaction price shown by the taxpayers falling within the range will be accepted and no adjustment will be made. The use of multiple year data allows for yearly variations to be averaged out and would therefore add value to transfer pricing analysis,” the ministry said. The new amendments are considered as an effort to attract overseas investors in the country. Earlier, the Income Tax department had prepared a draft of the proposed rule, seeking changes in the method used to calculate taxes on international transactions carried out multinationals. 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.  

October 21, 2015 | 4:21pm IST.