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Transfer pricing norms will not affect FDI: CBDT chief

Our Bureau

NEW DELHI, July 14

THE Central Board of Direct Taxes (CBDT) would not let the

transfer pricing provisions in the Income-Tax Act to be a cause for fall in foreign direct investment (FDI) into the country.

``We are conscious of the sensitivity of transfer pricing provisions on the foreign direct investment front. The department would not do anything that would discourage investors or drive away investors from the country,'' Mr A. Balasubramanian, Chairman, CBDT, said at a seminar on transfer pricing organised by the International Fiscal Association--India Branch.

The CBDT Chairman said that the transfer pricing provisions enacted recently were only in nature of deterrents and that the tax department would intervene only if there is an attempt to transfer taxes from Indian tax jurisdiction to another.

``As long as transactions are not motivated by transfer of taxes, the assessees don't need to fear about aggressive implementation of the provisions. The transfer pricing provisions will be administered in a careful manner without any unnecessary interfe rence to foreign trade,'' Mr Balasubramanian said.

On complaints that the penalty provisions pertaining to the transfer pricing legislation were quite ``harsh,'' the CBDT Chairman pointed out that the penalty provisions in some of the countries were even more severe.

He also said that the tax department is modifying its appellate mechanism to provide better tax conflict resolution mechanism. ``We want to reduce tax conflict, especially in international trade issues, as this could have a larger impact on overall trade . We are strengthening our provisions to ensure quicker relief in resolution of conflicts,'' Mr Balasubramanian said.

Some of the tax experts wanted to know as to how CBDT plans to address the issue of ``double jeopardy.'' Mr Balasubramanian told Business Line that the double taxation avoidance agreements between India and the other countries would take care of this asp ect. ``It's only in respect of those countries where we don't have a DTAA that this issue needs to be looked into,'' he said.

Tax experts explained that the present Indian transfer pricing regulations provided that any adjustment (by the tax officer) to the income or expense of the taxpayer would not result in a corresponding adjustment to the expense or income of the associate d enterprise of the taxpayer. ``In simple terms, no correlative adjustment is contemplated,'' they pointed out.

Meanwhile, sources said that the Organisation for Economic Cooperation and Development (OECD) officials, who met the CBDT top brass recently, are understood to have made a case for introduction of a range concept in the Indian transfer pricing regulation s.

Further, a suggestion has been made to include a provision in the Indian transfer pricing regulations to allow the taxpayer to base the arm's length price determination on data pertaining to earlier years.

Tax experts said that the newly-introduced transfer pricing regulations do not provide for reliance on multiple-year data for determining the arm's length price.

``It may happen that an enterprise has entered into a comparable uncontrolled transaction in the preceding year but not in the year under review. In such case, making use of data pertaining to such comparable transaction could be of immense help,'' they said.