India, US resolve 100 transfer pricing disputes

India and the United States have reached an agreement to resolve more than 100 pending transfer pricing issues, a major irritant for foreign companies planning to invest in India, according to a government statement released on Thursday.

The agreement was finalised under the mutual agreement procedure (MAP) provision contained in the India-USA double taxation avoidance convention (DTAC). The agreement seeks to resolve about 200 past transfer pricing disputes between the two countries in the information technology (software development) services (ITS) and information technology enabled services (ITeS) segments.

Some more are expected to be resolved soon.

Transfer pricing refers to the setting of the price of goods or services sold between entities within an enterprise. For example, if a subsidiary sells good or services to its parent company, then the price set for this sale is the transfer price.

One of the significant steps taken by the Central Board of Direct Taxes (CBDT) to boost investment sentiments among MNCs is the landmark framework agreement signed with the revenue authorities of the US in January 2015.

Prior to resolution of disputes under the framework agreement the US bilateral APA programme was closed to India. The success of the framework agreement in short period of one year has led to the US revenue authorities opening up their bilateral APA programme to India. The US is expected to begin accepting bilateral APA applications shortly.

The MAP programmes with other countries like Japan and the UK are also progressing well with regular meetings and resolution of past disputes. The CBDT is confident that a combination of a robust APA programme and a streamlined MAP programme would be helpful in creating an environment of tax certainty and encourage MNCs to do business in India.