India to accept mutual agreement process in transfer pricing cases

New Delhi, Nov 27: The Indian Income Tax Department will accept applications for Mutual Agreement Procedure (MAP) in transfer pricing disputes, as well as for bilateral Advance Pricing Agreements (APAs), even for entities resident in countries with which India has double taxation avoidance agreements (DTAA), minus the provision to claim corresponding tax adjustments, an official release said on Monday.

A Finance Ministry release here said the issue had arisen in cases where the associated enterprise of the Indian entity is resident of a country with which India has entered into a DTAA without the provision relating to "corresponding adjustment", or tax relief.

"The Central Board of Direct Taxes (CBDT) has decided to accept Transfer Pricing MAP and bilateral APA applications regardless of the presence or otherwise of Paragraph 2 of Article 9 (or its relevant equivalent Article relating to 'Corresponding Adjustment') in the DTAA," it said.

Article 9(2) is from the Model Tax Commentary developed by the Organisation for Economic Co-operation and Development (OECD), the Paris-based think tank of developed nations, and it allows taxpayers to claim corresponding tax adjustments in case of transfer pricing disputes arising from cross-border transactions.

In case of such a dispute, where the income of a taxpayer is re-determined on account of a transfer pricing adjustment, then Article 9(2) enables the enhanced income to be taxed in one country, with the other country providing tax relief, or a corresponding tax adjustment to the extent of the enhancement. This is to prevent double taxation of income.

Bilateral APAs include a rollback option which enhances certainty for such taxpayers for up to 9 years and allows them to seek assurance on their past years' transfer pricing positions as well.

The OECD's Base Erosion and Profit Shifting (BEPS) project is designed to counter the tax planning strategies used by multinational companies, that exploit gaps and mismatches in tax rules to artificially shift profits to low-tax jurisdictions or offshore havens. The BEPS project was initiated by the G20 group of economies in 2012.