The dispute resolution mechanism for matters relating to international tax and transfer pricing has been streamlined.
The Finance Ministry has put in place a new framework that seeks to bring much-needed rigour and neutrality to dispute resolution on international tax issues.
The move should encourage multinationals such as Vodafone and Shell to do more business here.
The new system, which replaces the one introduced in 2009, could go a long way in reducing tax litigation. The Central Board of Direct Taxes (CBDT) has introduced the new framework with effect from January 1. One of the criticisms of the earlier dispute resolution mechanism was that it was not “objective” and had, in most cases, only ended up confirming the “seemingly aggressive” adjustments of the transfer pricing officers.
The CBDT has now sought to correct the situation by staffing the new panels with dedicated full-time commissioners.
The new system has been introduced from January 1 as December 31 was the last date for the earlier panels to dispose of the transfer pricing references of assessment year 2011-12. Under the new dispensation, there will be five dispute resolution panels — two each in Delhi and Mumbai and one in Bengaluru. These panels have been assigned dedicated areas for coverage across various States so that there is a pan-India rollout.
In the earlier regime, commissioners were taking up dispute resolution as “additional work” and not functioning on a full-time basis. Under the new framework, three commissioners will be assigned by the CBDT to each of the five panels. There will also be a reporting structure for these commissioners. The panel members in Delhi will report to the Principal Chief Commissioner of Income-Tax (International Taxation).
On the other hand, the members in Mumbai and Bengaluru will report to the Chief Commissioners of Income Tax (International Taxation) of the West Zone (Mumbai) and and the South Zone (Bengaluru), respectively. The Chief Commissioner posts in Mumbai and Bengaluru have been newly created. “The CBDT move to put in place three Chief Commissioner-level officials to whom panel members will report will help reduce the time in taking decisions. The involvement of three senior people will help improve the functioning of dispute resolution panels,” SP Singh, Senior Director, Deloitte in India, told BusinessLine .
Aseem Chawla, Partner at law firm MPC Legal, said: “What is desirable is improved quality in disposal of matters by these panels. The true test would lie in whether, going forward, this is viewed as an efficacious dispute redress forum or not.”