Budget 2014: Advance Pricing Agreement to cover previous 4 year deals, to reduce TP disputes

NEW DELHI: Seeking to reduce transfer pricing litigation, Finance Minister Arun Jaitley on Thursday proposed to introduce a "Roll Back" provision under which Advance Pricing Agreement (APAs) would cover transactions for previous four years.

With regard to arm's length price for computing tax liability under the transfer pricing rules, he said a new "range concept" would be introduced in line with the international practices.

"I propose to strengthen the administrative set up of APA to expedite disposal of applications. Further, I propose to introduce a "Roll Back" provision in the APA scheme so that an APA entered into for future transactions may also be applied to international transactions undertaken in previous four years in specified circumstances," Jaitley said in his Budget 2014-15 speech.

In 2013-14, the tax department had received 232 applications from MNCs, up 60 per cent year-on- year, to obtain advance ruling over pricing arrangement for transactions within group firms and the ensuing tax liability.

APA, introduced in 2012, is a mechanism that aims at curtailing disputes that may arise from transfer pricing issues between MNCs and the revenue department.

The issue of transfer pricing - transaction prices between separate entities of large firms - has generated much heat in India involving MNCs operating here such as Vodafone, Shell, WNS and Nokia.

"Necessary legislative amendments to give effect to the above proposals, including those relating to the Authority for Advance Rulings and I-T Settlement Commission, will be moved in the current session of the Parliament," Jaitley said.