CBDT to ink more advance pricing pacts with MNCs by March 31
26 March 2014 5:01 AM IST
‘We will be signing more APAs before March 31,’ CBDT Chairman R K Tewari told reporters here.
The Government has so far received more than 146 applications from companies for advance pricing agreement mechanism which would allow companies to seek guidance on pricing of goods and services in advance. MNCs such as Vodafone, Shell, WNS and Nokia have recently come under the tax scanner on transfer pricing issue.
An APA is a pact, usually for multiple years, between a taxpayer and the taxing authority (Central Board of Direct Taxes in India) on an appropriate transfer pricing methodology for a set of international transactions in future. As per the APA rules notified by the Finance Ministry in 2012, fee for entering into APA with the CBDT would be Rs 10 lakh for international transaction up to Rs 100 crore, Rs 15 lakh for those up to Rs 200 crore and Rs 20 lakh for transactions above Rs 200 crore.
Though the provision for APA was included in the proposed Direct Taxes Code (DTC) Bill, the Centre had brought forward its implementation by including it in Finance Bill, 2012. In his Budget 2012-13 speech, the then Finance Minister Pranab Mukherjee had said in a globalised economy with expanding cross-border production chains and growing trade within entities of same group, APA can significantly bring down tax litigation and provide tax certainty to foreign investors.
Transfer pricing is a mechanism used by large companies regarding transaction prices between separate entities of the same group. Multinationals are often accused of misusing the system to transfer profits to their subsidiaries in countries with low tax regime.
The law requires that goods and services be sold to subsidiaries by parent companies at arm's length price — the price at which goods are traded between unconnected companies. Taxing these units has become a complex area for the revenue department, with the Government often disagreeing on the profits declared by a foreign company for its Indian unit.
On safe harbour rules, Tewari said, ‘We have not got very good responce on safe harbour rules. We are examing it.’ The Finance Ministry had notified safe harbour norms to ensure certainty in taxation of overseas transactions between related entities and reduce transfer pricing litigations.
Applicable to six sectors including IT and ITeS, auto ancillary and pharma, companies can take refuge under the norms for five years to avoid long drawn legal tangle with the government. The final norms as notified had laid down a set procedure for calculating "arm's length price".
The concept of an arm's length transaction was to ensure that both parties are acting in their own self interest. The ministry had relaxed various provisions to ensure more companies come under the purview of Safe harbour norms and the transaction threshold has been raised from Rs 100 crore to Rs 500 crore for IT, ITeS sector.
Transaction up to Rs 500 crore would have a safe harbour margin of 20 per cent and those above Rs 500 crore would have margin of 22 per cent. Definition of KPO had also been rationalised to provide reasonable distinction from regular business process outsourcing activity.
The safe harbour operating margin for this had been reduced to 25 per cent from 30 per cent, as per the recommendation of Rangachary committee. With respect to KPO businesses, the transaction threshold had been removed.
The ceiling had also been done away with for corporate guarantee as long as the Wholly-owned-subsidiary has been rated to be of adequate safety by a Sebi-registered rating agency.
Ready dossier for next govt, Cabinet Secy tells ministries
New Delhi: With the start of election process, bureaucracy is also gearing up for the next government with the Cabinet Secretary asking various Ministries to prepare summary of their works and schemes to brief the new cabinet as soon as it assumes charge.
In a letter written to Secretaries of all Ministries and Departments on March 13, Cabinet Secretary Ajit Seth asked them to prepare notes on status of schemes and programmes being implemented by the Ministries, how the works are progressing and if there is any delay, the reasons for it.
The election process will be completed after results are out on May 16.
The Cabinet Secretary asked the Secretaries to give details of the budget allocations
to the Ministries and Departments, whether the funds are sufficient, if not why and how much more allocation is required.
The summary, which has to be submitted by tomorrow, will highlight if the Ministries are implementing any programme which has national or international significance and their status. The Ministries were asked to mention about the pending projects and, why they were not implemented.
Seth asked the Ministries to prepare a list of utilised funds under separate heads and also draft a dossier on non-utilised funds and the reasons thereof. The move seems to be an exercise to facilitate a swift understanding about various plans, programmes and action initiated by the incumbent government. Observers have warned that non-elected individuals pose a threat to the Indian economy.
The Government has so far received more than 146 applications from companies for advance pricing agreement mechanism which would allow companies to seek guidance on pricing of goods and services in advance. MNCs such as Vodafone, Shell, WNS and Nokia have recently come under the tax scanner on transfer pricing issue.
An APA is a pact, usually for multiple years, between a taxpayer and the taxing authority (Central Board of Direct Taxes in India) on an appropriate transfer pricing methodology for a set of international transactions in future. As per the APA rules notified by the Finance Ministry in 2012, fee for entering into APA with the CBDT would be Rs 10 lakh for international transaction up to Rs 100 crore, Rs 15 lakh for those up to Rs 200 crore and Rs 20 lakh for transactions above Rs 200 crore.
Though the provision for APA was included in the proposed Direct Taxes Code (DTC) Bill, the Centre had brought forward its implementation by including it in Finance Bill, 2012. In his Budget 2012-13 speech, the then Finance Minister Pranab Mukherjee had said in a globalised economy with expanding cross-border production chains and growing trade within entities of same group, APA can significantly bring down tax litigation and provide tax certainty to foreign investors.
Transfer pricing is a mechanism used by large companies regarding transaction prices between separate entities of the same group. Multinationals are often accused of misusing the system to transfer profits to their subsidiaries in countries with low tax regime.
The law requires that goods and services be sold to subsidiaries by parent companies at arm's length price — the price at which goods are traded between unconnected companies. Taxing these units has become a complex area for the revenue department, with the Government often disagreeing on the profits declared by a foreign company for its Indian unit.
On safe harbour rules, Tewari said, ‘We have not got very good responce on safe harbour rules. We are examing it.’ The Finance Ministry had notified safe harbour norms to ensure certainty in taxation of overseas transactions between related entities and reduce transfer pricing litigations.
Applicable to six sectors including IT and ITeS, auto ancillary and pharma, companies can take refuge under the norms for five years to avoid long drawn legal tangle with the government. The final norms as notified had laid down a set procedure for calculating "arm's length price".
The concept of an arm's length transaction was to ensure that both parties are acting in their own self interest. The ministry had relaxed various provisions to ensure more companies come under the purview of Safe harbour norms and the transaction threshold has been raised from Rs 100 crore to Rs 500 crore for IT, ITeS sector.
Transaction up to Rs 500 crore would have a safe harbour margin of 20 per cent and those above Rs 500 crore would have margin of 22 per cent. Definition of KPO had also been rationalised to provide reasonable distinction from regular business process outsourcing activity.
The safe harbour operating margin for this had been reduced to 25 per cent from 30 per cent, as per the recommendation of Rangachary committee. With respect to KPO businesses, the transaction threshold had been removed.
The ceiling had also been done away with for corporate guarantee as long as the Wholly-owned-subsidiary has been rated to be of adequate safety by a Sebi-registered rating agency.
Ready dossier for next govt, Cabinet Secy tells ministries
New Delhi: With the start of election process, bureaucracy is also gearing up for the next government with the Cabinet Secretary asking various Ministries to prepare summary of their works and schemes to brief the new cabinet as soon as it assumes charge.
In a letter written to Secretaries of all Ministries and Departments on March 13, Cabinet Secretary Ajit Seth asked them to prepare notes on status of schemes and programmes being implemented by the Ministries, how the works are progressing and if there is any delay, the reasons for it.
The election process will be completed after results are out on May 16.
The Cabinet Secretary asked the Secretaries to give details of the budget allocations
to the Ministries and Departments, whether the funds are sufficient, if not why and how much more allocation is required.
The summary, which has to be submitted by tomorrow, will highlight if the Ministries are implementing any programme which has national or international significance and their status. The Ministries were asked to mention about the pending projects and, why they were not implemented.
Seth asked the Ministries to prepare a list of utilised funds under separate heads and also draft a dossier on non-utilised funds and the reasons thereof. The move seems to be an exercise to facilitate a swift understanding about various plans, programmes and action initiated by the incumbent government. Observers have warned that non-elected individuals pose a threat to the Indian economy.
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