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Home / Politics / Policy /  I-T dept seeks to pare transfer pricing cases

I-T dept seeks to pare transfer pricing cases



The department has introduced the range concept for determination of arms length price and use of multiple-year data for undertaking comparability analysis

In a move aimed at reducing transfer pricing litigation involving big multinational companies, the income tax (I-T) department has notified guidelines defining key transfer pricing concepts that will provide clarity and remove ambiguities.

In a move aimed at reducing transfer pricing litigation involving big multinational companies, the income tax (I-T) department has notified guidelines defining key transfer pricing concepts that will provide clarity and remove ambiguities.

In line with the promise made by finance minister Arun Jaitley in his budget speech to reduce transfer pricing disputes, the department has introduced the range concept for determination of arms length price and use of multiple-year data for undertaking comparability analysis in transfer pricing cases.

In line with the promise made by finance minister Arun Jaitley in his budget speech to reduce transfer pricing disputes, the department has introduced the range concept for determination of arms length price and use of multiple-year data for undertaking comparability analysis in transfer pricing cases.

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Transfer pricing refers to the practice of arm’s length pricing for transactions between group companies based in different countries to ensure that a fair price—one that would have been charged for an unrelated party—is levied.

It is one of the major areas of litigation between the tax department and tax payers.

A range concept will help reduce litigation because the transaction price shown by a company falling within the specified broad range will be accepted by the tax department and no adjustment of income accruing to the Indian operations will be made.

“The range concept will be applicable in certain cases for determining the price and will begin with the 35th percentile and end with the 65th percentile of the comparable prices," the tax department said in a statement.

“Transaction price shown by the taxpayers falling within the range will be accepted and no adjustment will be made," it added.

Similarly, relying on multiple-year data rather than only yearly data will help in accounting for variations across years.

Last week, the department issues new guidelines ending the practice of compulsorily referring cases above a certain revenue threshold to the transfer pricing officer and limited the number of big cases that an officer can look into.

S.P. Singh, senior director, Deloitte India, said the two notifications issued this week and last week’s notification would change the approach to transfer pricing audit in India and would send a positive message to investors.

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