Transfer pricing: no let up in taxman’s ‘aggressive’ stance

If you thought the Indian tax authorities have turned less aggressive or non-adversarial on the transfer pricing front, think again.

The taxman is in no mood to shed the perceived “aggressiveness” tag, going by the quantum of transfer pricing adjustments made in the latest completed cycle on January 31 this year.

The total transfer pricing adjustment made in 2014-15 – relating to 2010-11 – stood at a whopping ₹46,466 crore, Finance Ministry data showed.

What is more disconcerting is that these adjustments have been made in nearly 55 per cent of the cases in which transfer pricing audit was taken up and completed.

Out of the 4,290 cases where such audits were completed, adjustments were done in 2,353 cases in the latest cycle.

The ratio (about 55 per cent) is on the higher side and internationally hovers only around 25 per cent, say tax experts.

In the initial years of the Indian transfer pricing regime, this percentage was about 22-27 per cent, and has been over 50 per cent over the past five years (2006-07 to 2010-11), reflecting the aggressive approach of Indian tax authorities.

“Our analysis shows that majority of adjustments get knocked off at tax tribunal level. Hence, this aggressive position does not yield corresponding revenues for government, but causes hardship for taxpayers,” SP Singh, Senior Director — Transfer Pricing, Deloitte in India, told BusinessLine .

He said this position can be made more reasonable for the taxpayer as well as the tax department if safe harbour rules are properly amended and the Advance Pricing Agreements mechanism is made more robust.

Amit Maheshwari, Partner, Ashok Maheshwary & Associates, a chartered accountancy firm, said the transfer pricing regime in India is still “aggressive and adversarial”.

Partho Dasgupta, Partner-Direct Tax, BDO India LLP, said most of the transfer pricing adjustments are repetitive in nature and are related to old issues not resolved in High Courts as yet.

However, the quantum of adjustments being made does not give the right signal, he added.

Unlike several countries, India is following a different approach to transfer pricing audits wherein transactions above a particular threshold are mandatorily picked up.