ITeS, software development firms signing maximum APAs: CBDT

NEW DELHI: The Information Technology-enabled Services (ITeS) and software development sectors are undertaking the maximum Advance Pricing Agreements ( APAs) with tax authorities in India for reducing litigation and operating smoothly while countering tricky transfer pricing cases, officials said.

The Income Tax department has signed 31 such agreements so far with various sectors of the economy.

"The most number of applications (for inking of APA) come from ITeS and software development services as, obviously, the disputes here are maximum.

"We have welcomed them as we have welcomed all the other sectors of the economy which have either entered into APAs with the tax department or are desirous of doing so," CBDT Member (Income Tax And Revenue) Atulesh Jindal told PTI.

The top official refrained, however, from quantifying specifically the number of APAs entered into or applied for by these two prime business sectors out of the total 580 applications that tax authorities have received since the scheme was launched in 2012.

The Central Board of Direct Taxes (CBDT) is the apex policy-making body of the I-T department.

Jindal said that among the other sectors of the economy that have entered into APAs are investment advisory services, engineering design services, marine products, contract research and development and cargo-handling support services.

An Advance Pricing Agreement is signed between a taxpayer and the tax department on an appropriate transfer pricing methodology for determining the value of assets and ensuing taxes on intra-group overseas transactions.

Transfer pricing transactions between separate entities of large MNCs have generated much heat in the last few years, including of large companies like Vodafone, Shell, WNS and Nokia.

MNCs are often accused of misusing the system to transfer profits to their subsidiaries in countries that have low tax regimes.

For greater ease of doing business and reducing litigations with MNCs on the transfer pricing tax issue, CBDT has also said that it is making efforts to bring down "dispute" areas to hasten the approval of pending APA applications.

The Board and the tax department are working on finalising at least 30-40 more such pacts by the end of this financial year.

CBDT has said that APAs are aimed at providing stability and confidence to foreign enterprises operating in India as the endeavour of the government is to "foster an environment of cooperation in matters of taxation through predictability of laws and reduced litigation."

Under Transfer Pricing rules, the Indian 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.