India, US resolve over 100 transfer pricing disputes

Indian tax authorities along with its US counterpart have resolved over 100 transfer pricing disputes for sectors such as information technology (software development) services (ITS) and information technology-enabled services (ITeS) over a one-year period. The move is directed towards the broader objective of the government to improve the ease of doing business. This development is likely to enhance foreign investment flow. The Central Board of Direct Taxes (CBDT) has said that more cases are expected to be solved by the end of the financial year.

CBDT has said that resolution of such issues follows the framework agreement signed with the US revenue authorities in January last year to resolve about 200 transfer pricing cases. The framework was finalised under the mutual agreement procedure (MAP) provision contained in the India-USA Double Taxation Avoidance Convention (DTAC). 

Further, encouraged by the success of the framework, the US has opened the bilateral advance pricing agreement (APA) programme to India. An APA is a multiple year contract between a taxpayer and at least one tax authority specifying the pricing method that the taxpayer will apply to its related-company transactions. Bilateral APAs involve the taxpayer, its local subsidiary, the Indian tax authority and that of the country the company is headquartered.

Besides, the CBDT said a combination of a robust APA programme and a streamlined MAP would be helpful in creating an environment of tax certainty and encourage MNCs to do business in India. So far in the current fiscal alone, CBDT has signed 39 (38 unilateral and one bilateral) APAs, with 30 agreements.