Recent Transfer Pricing related updates in India

Updates on Advance Pricing Agreements (APAs)

Recently, in March 2018, the Central Board of Direct Taxes (CBDT) concluded 16 APAs i.e. 14 Unilateral and 2 Bilateral APAs. Said 2 bilateral APAs entered are unique APAs i.e. one involving acceptance of the price determined by Special Valuation Branch of Customs Authorities as ALP for import transaction and the other one involving transaction of foreign bank with cross-border loan origination arrangements. It is pertinent to note that this is possibly the first instance wherein the APA authorities have accepted Customs Valuation for Transfer Pricing purposes. Traditionally, the Transfer Pricing and Customs officers have resorted to different approaches, given the different objectives of the two regulations. It should be noted that, essentially, the lower tax authorities are not accepting customs valuation for transfer pricing purposes.

It is important to note that both the Bilateral APAs concluded by the CBDT are with US Competent Authorities (CAs). It is understood that US CAs have principally agreed upon additional 5 Bilateral APAs.

CBDT concluded 67 APAs (i.e. 58 Unilateral and 9 Bilateral APAs) in Financial Year 2017-18 itself. The total number of APAs concluded to date by CBDT has gone up to 219 (i.e. 199 Unilateral APAs and 20 Bilateral APAs).

The APA authorities have reinforced its intent to resolve complex tax matters, which shall boost the confidence of foreign investor and provide tax certainty to Multinational Companies.

Updates on Mutual Agreement Procedure (MAP)

Recently, the Indian and US CAs have resolved around 40 MAP cases, including 2 Bilateral APAs (mentioned above). Said cases were predominantly related to the transactions relating to Information Technology sector. It is understood that around 400 cases (including transfer pricing cases) have been resolved in the last 3 years i.e., 200-plus cases under the framework agreement and another 200 outside of the framework agreement.

Furthermore, it is also understood that the CAs have made progress on the complex issue of Advertising, Marketing and Promotion (AMP) that has stalled the resolution of some MAPs.

Revision of time limit for preparing the Country-by-Country Report (CbC Report)

Under section 286(2) of the Income-tax, Act 1961 (Act), every parent entity or alternate reporting entity resident in India which is a constituent entity of an international group shall prepare the CbC report on or before the due date prescribed for filing the income return for the relevant accounting year (i.e. by 30 November 2018 for accounting year 2017-18). As per the amendment made in the Finance Act 2018, the revised time limit for preparing the CbC report is 12 months from the end of every reporting accounting year (i.e. by 31 March 2019 for accounting year 2017-18).