In the upcoming budget, the Advance Pricing Agreement or APA that was implemented for in the Direct Taxes Code with transfer pricing matters will be presented, Information Technology and business process outsourcing firms are hoping for that. In choosing arms length profit edge for the ITeS and software industries, some say that the Indian tax department is beginning to become aggressive and determined. In such arguments, more than Rs 40,000 crore is the expected figure to be earned.
The President of Nasscom, Mr. Som Mittal said that there is mystery all over, across the region transfer pricing rules are being adapted illogically. Almost 35 percent of revenue of the Indian outsourcing firms came from MNC’s unit. In India, tax authorities have been investigated with tax global profits in some cases. He also added that he keeps his fingers crossed that the safe harbour provisions and the APA will be announced this forthcoming budget. It is cost-effective and every individual wants a better environment that is why people was moving in India.
The tax department claimed that the transfer pricing spending as a shift profits to be tax friendly jurisdictions as they acted upon the argument. They stated that the India’s MNC’s are counting up additional value than what they are totally announcing so they will get less tax. The tax department is using the arm’s length principle to settle the right value added, the units should give services with the equivalent price just as a third party provider would do to another group.
The authorities observed the 25-35 percent additional cost for restricted units that is irrational and too much said by Mr. Partho Dasgupta, Partner at Tax Advisory Services at BDO. With the cost of the services that some big companies like HCL and Wipro produce the value add of the captive units are being analyzed. The authorities should apply the procedure of comparing with other firms, with a huge firm you cannot balance a unit worth Rs 100 crore turnover even several times with that extent.
Mr. S.P. Singh, Senior Director of Deloitte Haskins & Sells stated that a particular individual is wishing that in this year, APA scheme will be kicked. For international transactions, the APA will be valid for 5 years with the calculation system for an arms length price as the tax authorities and the tax payers start an affinity. People are deliberate that the APA will be announced in the budget, that is included in the DTC however it will take a long time before it will be enabled. It is not going in any constant solution as presently almost all of the litigation was in favor of the taxpayers, Mr. Singh added.
The tax authorities in the United States and India set an affair and negotiate regarding with the transfer pricing in a MAP or Mutual Agreement Procedure. The agreements have been resolved with a cost plus of 17-19 percent in MAPs. Mr. Singh said that with MAPs they can now quickly deal with an APA system and the tax authorities have adequate experience. According to the Deloitte white paper the reasonable margin is 14 percent, while 10-12 percent was the observation of the taxpayers but the it settles to 18-19 percent. But the IT and BPO sector wants some positive assurance. The tolerance limit that must increased according to Mr. Dasgupta is 5 percent through 10-15 percent.
REFERENCES:
http://www.bpo.biz/bpo-news-blog/2012/03/02/advance-pricing-is-highly-anticipated-in-this-budget-by-the-it-bpo-companies/
http://www.thehindubusinessline.com/industry-and-economy/info-tech/article2946904.ece?homepage=true&ref=wl_home
http://stockviz.biz/index.php/2012/02/29/it-bpo-industry-hopes-for-advance-pricing-in-this-budget/
http://trove.nla.gov.au/work/163475302
http://www.nasscom.in/itbpo-industry-hopes-advance-pricing-budget
