The Central Board of Direct Taxes (CBDT) has come out with new instructions on transfer pricing that could go a long way in establishing non-adversarial tax regime for MNCs operating in India.
Replacing all earlier instructions on transfer pricing assessments, the latest instruction could pave the way for sharp reduction in transfer pricing litigation in India and give a boost to taxpayer confidence on the Indian tax system.
Amit Agarwal, Partner-Transfer Pricing, Nangia & Co, said that the administrative withdrawal of the power of assessing officer to make transfer pricing addition would definitely go a long way in reducing transfer litigation. Henceforth, transfer pricing additions can only be penned by the transfer pricing officer.
Focus on quality Agarwal also said that the new instruction demonstrates focus of the Government on quality of transfer pricing litigation rather than quantity.
It is expected that the quantum of transfer pricing litigation could fall by as much as 50 percent over next year, he said.
“In simple terms, the new instruction is significant, incredible and remarkable news for MNCs in India,” Agarwal said.
More transparent Samir Gandhi, Partner, Deloitte, Haskins & Sells said the revised guidelines dated March 10 — applicable with immediate effect — requires Assessing officer not to determine arms length price for transfer pricing. Only transfer pricing officer will do the same, Gandhi added.
The risk parameters for selection of cases for transfer pricing can be made known to the taxpayers which will be transparent and also act as a deterrent for application of correct transfer pricing, he said.
The non transfer pricing risk parameters are broadly the same as in earlier years, he said.