India’s government will amend its tax regulations to allow for the roll back of advance pricing agreements (APAs) to the previous four years, Finance Minister Arun Jaitley announced during a July 10 speech outlining the 2014-15 Union Budget.
The new rules, long sought by international firms, could assist in resolving India’s huge backlog of transfer pricing disputes, permitting terms agreed to in an APA between the government and a taxpayer to apply to previous tax years.
Jaitley said the government will also introduce a “range concept” to determine arm’s length price for transfer pricing, though arithmetic mean would continue to apply in cases where comparables are considered to be inadequate. The change, also desired by foreign business, would align India’s transfer pricing regulations with best available practices, Jaitley said.
Moreover, Jaitley said, the government will amend transfer pricing regulations to permit multiple year data for comparability analysis.
Jaitley said the transfer pricing reforms are designed to reduce litigation, a significant problem in the country.
Left off of transfer pricing practitioners’ wish list was any reduction to transfer pricing safe harbor margins, however. India finalized transfer pricing safe harbors in September 2013, but the rules are said to have limited usefulness because they require too much profit be allocated to Indian operations.
Also, the budget failed to resolve Vodafone’s long-running indirect share transfer dispute with the Indian government or eliminate the possibility of future retrospective tax amendments, as some had hoped. Instead, Jaitley said the right of the government to promulgate retrospective legislation was “unquestionable,” though he said the right should be exercised with “extreme caution and judiciousness.”
The Finance Minister said that indirect share transfer disputes, such as Vodafone’s, that are already “in various courts and other fora” would be left alone, to “naturally reach their logical conclusion.” On the other hand, any new indirect share transfer disputes arising out of the 2012 retrospective amendments will be scrutinized by a high level committee to be constituted by the Central Board of Direct Taxes before further government action is taken, he said.
Jaitley also said that the right to obtain an advance ruling will be extended to residents, and that the government will expand the Authority for Advance Rulings by constituting additional benches.
A new high level committee will be set up to interact with business to determine where tax law clarifications are needed. Any clarifications deemed necessary by the committee will be issued within two months, the Finance Minister said.
In addition, Jaitley said, the scope of the Income-tax Settlement Commission will be expanded so that taxpayers may approach the Commission for settlement of disputes.
