In its resolve to make the MAP process robust and transparent, the Indian Revenue continues to have the following key resolution parameters in its updated Guidance:
The Indian MAP process provides flexibility to taxpayers to pursue alternate resolution mechanisms simultaneously while pursuing MAP.
It has been observed in recent years that the Indian Revenue has been proactive in resolving matters under MAP with an intent to provide transparency, clarity and resolutions for taxpayers.
With the impact of the pandemic reducing, the Indian Revenue has fast tracked its APA process to provide certainty to taxpayers in their Transfer Pricing disputes. The Indian Revenue has entered into 62 APAs (13 Bilateral APAs and 49 Unilateral APAs) in FY 2021-22. This is double the number of APAs entered into in FY 2020-21, i.e. 31 APAs.
In the past, the Indian taxpayers have witnessed aggressive scrutiny from the Transfer Pricing perspective which has resulted in protracted litigation. With the Indian APA programme introduced in 2012, the Indian Revenue has entered into 421 APAs to date, resulting in tax certainty and limiting Transfer Pricing litigation for the taxpayers.
The applicability of safe harbour rules for specified transactions has been extended for FY 2021-22 to provide certainty to Indian taxpayers. Some of the commonly entered into international transactions and their applicable safe harbour rates are:
The arm’s length cost plus rate as determined through local benchmarking is reasonably lower than the cost-plus rate under the safe harbour rules. Taxpayers must undertake a thorough cost-benefit analysis before opting for the cost plus rate under the safe harbour rules over the arm’s length rate as determined through local benchmarking, and pursue alternate active resolution mechanisms (i.e. APAs or a normal litigation route) if challenged by the tax officers to reach a conclusion.
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