|Ashok Maheshwary & Associates|
|BMR Advisors, Taxand India|
|Economic Laws Practice|
|G.M. Kapadia & Co|
|Nangia & Co|
|TP Ostwal & Associates|
|Firms to wach|
|Lakshmikumaran & Sridharan|
Indian transfer pricing regulations have been heavily affected by the changing global tax and transfer pricing environment prompted by the OECD's BEPS Project.
India has been one of the strongest supporters of the BEPS project, quickly adopting many BEPS measures despite not being an OECD member country. India adopted BEPS Action 13 to introduce the master file, local file and country-by-country reporting (CbCR) into its local legislation from April 1 2016. It further signed the multilateral competent authority agreement for the automatic exchange of CbCR.
"There is heightened early-stage anxiety on the part of companies that will be required to comply with CbCR, as the extensive nature of reporting and the implications from a BEPS-risk assessment standpoint has dawned on them," said Gokul Chaudhri, head of direct tax at BMR Advisors, Taxand India.
On the other hand, Amit Maheshwari of Ashok Maheshwary & Associates viewed India's moves towards aligning with the international tax standards as a positive for foreign investors. "The introduction of range concept in place of arithmetic mean has been proven to be another step in alignment of the Indian regulations with the international laws which has gained more confidence of foreign investors in the Indian economy," he said.
Another trend identified in the Indian transfer pricing market is that a number of advance pricing agreements (APAs) have been favourably adopted by companies and the Indian tax authorities.
"In the recent years, transfer pricing has been one of the most litigated issues before the judicial authorities. However, the government, in line with its efforts to cut the amount of litigations in the country, has tried to provide a little bit more stability to it. Consequently, the quantum of litigation has been reduced considerably," said Maheshwari.
Indian companies and the government are actively closing APA files, with more than 711 APA applications filed as of March 2016. Of these applications, 80 were bilateral.
"The number of APAs filed, unilateral as well as bilateral, has increased exponentially. The rollback mechanism in the APA programme has given a breather to many multinationals. This shows that APA is being seen as a successful dispute resolution mechanism," said Dinesh Kanabar, CEO of Dhruva Advisors.
Further, the government has changed its guidelines, leading to the tax authorities targeting audits with a focus on a risk-based selection rather than the former value-based method. The number of cases assigned to each transfer pricing officer has also been reduced from 70 to 50 to improve handling of complex and critical cases.
There has been a significant debate on several adjustments made by transfer pricing authorities in the past year, particularly on marketing intangibles, like advertising and marketing promotion (AMP) spends. "Another pain point for many corporates was the additions on account of alleged excessive expenditure on AMP. Recently, the Supreme Court has admitted a special leave petition on AMP matter. In the time to come, we expect the Apex court to decide the matter and put to rest the issue by providing clarity on this matter," said Kanabar.
(As of January 1 2016)
|Domestic company income tax rate||30% (a)|
|Capital gains tax rate||20% (a)|
|Branch tax rate||40% (a)|
|Paid to domestic companies||10% (b)(c)|
|Paid to foreign companies||20% (a)(b)(c)(d)(e)|
|Royalties from patents, know-how etc||10% (a)(b)(e)(f)|
|Technical services fees||10% (a)(b)(e)(f)|
|Branch remittance tax||n.a.|
Net operating losses (years)
Source: EY 2016 Worldwide Corporate Tax Guide