India’s new proposal for transfer pricing secondary adjustments is welcome relief

By Ajit Jain & Siddhesh Chaugule

India’s Central Board of Direct Taxes (CBDT) on 19 June proposed to amend India’s harsh transfer pricing secondary adjustment rules that apply in when the primary adjustment is made as a result of an advance pricing agreement (APA) or mutual agreement process (MAP). 

The CBDT on 15 June 2017 issued new rules for transfer pricing secondary adjustments. These rules are designed to attribute income to the excess money in the hands of an associated enterprise following a primary transfer pricing adjustment and also require an actual allocation of funds consistent with that adjustment.

Under the 2017 rules, a time limit of 90 days was set for repatriation of excess money, which begins when the primary adjustments attains finality.

These rules established that if the primary adjustment was made as a consequence of an APA, the 90-day period would begin from the date of filing of the return. If the primary adjustment was a consequence of the MAP,  the 90 days is reckoned from the income tax return due date.

Both rules were viewed as quite harsh to taxpayers as the interest on secondary adjustments was computed from a period before the APA agreement or before the MAP resolution.

New rules

The CBDT’s new proposal is designed to provide relief.

Under this proposal, for primary adjustments made as a consequence of an APA, the period of 90 days would instead begin from the date the APA has been entered into by the taxpayer.

For primary adjustments made as a consequence of a MAP, the period of 90 days begins from the date of giving effect by the assessing officer under rule 44H to the resolution arrived under the MAP.

These proposed changes provide a practical solution for interest computation for resolutions under APA and MAP.

The amendment would likely provide relief to MNEs operating in India who have obtained MAP or APA program to obtain certainty with respect to their transfer pricing positions in India.

–Ajit Jain, Managing Partner, Ajit Kumar Jain & Co. LLP  is a Chartered Accountant with LL.M. in International Taxation from Vienna, located at Mumbai specializing in transfer prici19ng dispute resolution. He can be reached at [email protected].

–Siddhesh Chaugule, BBA, LLB, LLM  is Assistant Manager with Ajit Kumar Jain & Co. LLP.