Advance Pricing Arrangements for International Transfer Pricing in India: The Implications for MNCs and Taxation Authority

Nirma University Journal of Business and Management Studies, Vol. 4, Nos. 3 & 4, pp. 3-17, 2010

17 Pages Posted: 27 Feb 2011 Last revised: 6 Jun 2012

See all articles by Pawan K. Chugan

Pawan K. Chugan

Nirma University - Institute of Management

Date Written: March 1, 2010

Abstract

The transfer pricing regulations in India came into force in 2001 with their effective audits beginning from the 2003 onwards. The Central Board of Direct Taxation has constituted a special cell for all transfer pricing audits. Over the past four years or so, there has been a significant increase in the number of transfer pricing disputes. The onerous documentation requirements and stringent penalties prescribed by the regulations were a cause of concern for taxpayers for their international business transactions and this area of dispute between the taxation authority and companies has emerged as a single biggest source of courtroom battle. There has been stringent demand from the tax specialists and the members of industry/industry association that the government to announce a clear-cut advance pricing mechanism (APA) to decide about the values of international transactions between the related parties. The Union Budget 2009 and New Code on direct taxation have introduced a few proactive and well thought-out measures that can resolve the transfer pricing disputes. In this new scenario, an attempt has been made in this paper to put together and describe the concept of Transfer Pricing, Abuse of transfer pricing, Arm’s length Pricing, Safe Harbour, Advance Pricing Arrangements (APAs), Type of APAs, Benefits and Shortcomings of APAs and Amendments brought out/proposed to be brought out in Transfer Pricing Rules. Further, the paper underscores - the implications of the proposed changes in the transfer price regulations vis-à-vis suggestions for the same and concludes that the APA mechanism will benefit both the MNCs and tax administration and will attract more foreign investment in the country and emphasize upon the need of APAs orderly implementation while considering some of the suggestion of experts so that the desired objectives are met.

Keywords: Multinational Corporations (MNCs), Transfer Pricing, International Transfer Pricing, Arm’s Length Pricing, Abuse of Transfer Pricing, Advanced Pricing Arrangements (APAs), Unilateral APA, Bilateral APA, Safe Harbour, New Tax Code and Transfer Pricing, Alternative Dispute Resolution (ADR)

JEL Classification: E62, F21, F23, H2, H32, H87

Suggested Citation

Chugan, Pawan Kumar, Advance Pricing Arrangements for International Transfer Pricing in India: The Implications for MNCs and Taxation Authority (March 1, 2010). Nirma University Journal of Business and Management Studies, Vol. 4, Nos. 3 & 4, pp. 3-17, 2010. Available at SSRN: https://ssrn.com/abstract=1770262

Pawan Kumar Chugan (Contact Author)

Nirma University - Institute of Management ( email )

Sarkhej Gandhinagar Highway
Ahmedabad, Gujarat 382481
India
+912717241900 (Phone)
+912717241916 (Fax)

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