ASSOCHAM Calls for Fundamental Reforms in Transfer Pricing Norms

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New Delhi: Industry body ASSOCHAM today called for introducing fundamental reforms in transfer pricing regulations with in-built mechanisms for smooth negotiation and conflict resolution to avoid unnecessary litigation and reverse the risk of tax base erosion.
Radical changes are underway with the Direct Taxes Code likely to come into effect from next financial year (2012-13) but there is no formal mechanism for mediation under the law at present, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
Transfer price refers to the amount used in accounting for cross-border transfer of goods or services from one responsibility centre to another or from one company to another which belongs to the same group. It is a mechanism for distributing revenue between different divisions which jointly develop, manufacture and market products and services.
The transfer pricing disputes in India have so far involved officers and taxpayers locking horns on complex economic concepts relating to creation of intangibles, location savings and benefits commensurate with payments. A sizeable number of disputes arise solely on the ground of comparability or benchmarking analyses.
Transfer pricing regulations should introduce the concept of multiple years data not only from the perspective of compliance but more importantly for improving the quality of comparability analyses as repeatedly voiced by the Organisation for Economic Cooperation and Development (OECD) for comparability analyses, said ASSOCHAM secretary general D.S. Rawat.
Authorities should adopt the concept of inter-quartile range and median as better and more robust statistical tools, instead of arithmetic mean which produces biased results, he said in communication to the finance ministry.
Case studies prove that most transfer pricing adjustments on account of comparability analyses actually take place due to peculiarities of Indian transfer pricing regulations rather than business realities, said Mr Rawat.
Fiscal demands aggravated by downturn place significant pressure on governments to raise revenue and prevent tax base erosion. On the other hand, multinational enterprises face constant competitive pressure to structure global operations effectively and efficiently by achieving lower costs.
This results in substantial increase in number and size of audits, adjustments and disputes. Nearly 70 per cent of global transfer pricing litigations emanate from India.
December 02, 2011 / orissadiary

Ozg Transfer Pricing Consultant

Ozg Center | London | New Delhi | New York | Mumbai

Back Office Phone # 0091-9811415861-72-84-92-94

Email: transfer.pricing@ozg.co.in

www.TransferPricingConsultant.com

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