I-T dept signs APAs with 5 MNCs, more pacts in offing

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Seeking to reduce litigations and promote foreign investments, the Income Tax department has signed Advance Pricing Agreements with 5 multinational firms and plans to enter into more such pacts.

"We have signed 5 APAs so far. We will be signing more in the coming days. Foreign companies are eager to enter into the agreement to avoid any future tax disputes," a top revenue department official told PTI.

The government has received more than 145 applications from companies for the mechanism, which will allow MNCs to seek guidance on pricing of goods and services in advance.

"Taxation scenario in the country is improving. Companies are now engaging into discussions with the tax department to seek advice on tax implications of transactions they are entering into," the official said.

An APA, usually for multiple years, is signed between a taxpayer and the tax authority (Central Board of Direct Taxes in India) on an appropriate transfer pricing methodology for determining the price and ensuing taxes on intra-group overseas transactions.

Transfer pricing - transaction prices between separate entities of a large company - has generated much heat in connection with investments by large MNCs 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 rates.

The 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.

Taxing these units has become a complex area for the revenue department, with the government often disagreeing on the profits declared by a foreign company for its Indian unit.

As per the APA rules notified by the Finance Ministry in 2012, fee for entering into APA with the CBDT would be Rs 10 lakh for international transaction up to Rs 100 crore, Rs 15 lakh for those up to Rs 200 crore and Rs 20 lakh for transactions above Rs 200 crore.

Though the provision for APA was included in the proposed Direct Taxes Code (DTC) Bill, the Centre had brought forward its implementation by including it in Finance Bill, 2012.

In his Budget 2012-13 speech, the then Finance Minister Pranab Mukherjee had said that in a globalised economy with expanding cross-border production chains and growing trade within entities of same group, APA can significantly bring down tax litigations and provide tax certainty to foreign investors.

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