India, U.S. resolve 35 transfer pricing disputes in IT sector

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The Revenue Department on Thursday said 35 transfer pricing disputes between India and the U.S. in different segments of Information Technology (IT) have been resolved and another 100 are likely to be settled in the next three months. A Framework Agreement was recently signed with the U.S. under the Mutual Agreement Procedure (MAP) provision of the India-U.S. Double Taxation Avoidance Convention (DTAC).

“This is a major positive development,” the Central Board of Direct Taxes (CBDT) said in a statement. About 200 past transfer pricing disputes between the two countries in IT (Software Development) Services [ITS] and Information Technology enabled Services [ITeS] segments are expected to be resolved under this Agreement during the current year.

“So far, 35 disputes have been resolved and another 100 are likely to be resolved in the next three months,” the CBDT said. The Framework Agreement with the U.S. opens the door for signing of bilateral Advance Pricing Agreements (APAs) with the US, it said.

“The MAP programmes with other countries like Japan and UK are also progressing very well with regular meetings and resolution of past disputes. “These initiatives will go a long way in providing stable tax environment to foreign investors doing business in India,” said the CBDT, which is responsible for direct tax collections in the country.

CBDT also said it has entered into two unilateral APAs with two multinational companies as part of a “major initiative” to usher in certainty in taxation. Of these, on is the first APA with a ‘Rollback’ provision. The agreements were signed on August 3.

With this, the CBDT has so far signed 14 APAs, of which 13 are unilateral APAs and one is a bilateral APA. APAs settle transfer prices and the methods of setting prices of international transactions in advance.

“The Government is committed to conclude a large number of APAs to foster an environment of tax cooperation and certainty. Currently, a number of unilateral as well as bilateral APAs with Competent Authorities of UK and Japan etc are at advanced stage of negotiations,” the CBDT said.

The 14 APAs signed relate to sectors like telecom, oil exploration, pharmaceuticals, finance, banking, software development services and ITeS (BPOs). Unilateral APAs are agreed between Indian taxpayers and the CBDT, without involvement of the tax authorities of the country where the associated enterprise is based. Bilateral APAs include agreements between the tax authorities of the two countries. An APA with the ‘Rollback’ provision extends tax certainty for nine financial years as against five years in APAs without ‘Rollback’

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