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India Closer To Pricing Agreements

Indian tax officials met representatives of the big-four accounting firms on November 27 as they continue to build up to the introduction of advance pricing agreements (APA) in India.

Indian tax officials met representatives of the big-four accounting firms on November 27 as they continue to build up to the introduction of advance pricing agreements (APA) in India.

A proposal from a subgroup of the CBDT (Central Board of Direct Taxes) staff has already advocated wide ranging international tax changes, including the inauguration of APAs, for which international companies have been arguing for many years. The subgroup said CBDT officials are now technically competent enough to negotiate APAs. It also made recommendations on arm's-length methodologies.

A review of the threshold limit for selection for transfer pricing audit, pegged at Rs150 million ($3.8 million) at present, could also be on cards. This is because the government wants tax authorities to focus on quality in case of transfer pricing audits.

The meeting with representatives from PricewaterhouseCoopers, Deloitte Haskins & Sells, Ernst & Young and KPMG discussed the advisers' experiences of APAs and debated issues such as the need for APAs in India; how an APA programme would work in India, what skills tax officials would need, how database requirements would be met and how APAs work in other countries.

"The government should look at a timeframe for conclusion of APAs when it introduces it to make it successful," said Sudhir Kapadia, a partner of KPMG. "A relationship based on trust should be established between the taxpayer and the APA authorities. Medium-term bilateral agreement with countries to make APA more effective for multinational company tax payers should also be looked at."

The tax practitioners are believed to have told the officials that due to the time, effort and cost involved in obtaining an APA, the Indian government should allow for APAs of at least three to five years. They also emphasised that any company applying for such an agreement needs to be sure that past closed years will not be audited again based on the transfer pricing agreed in the APA.