Transfer Pricing - UN Model Double Taxation Convention - India raises Objections
IN a letter to the UN Department of Economic & Social Affairs, Sanjay Mishra, Joint Secretary (FT&TR) in the CBDT, states,
In the case of Transfer Pricing, although it is governed by domestic legislation of each country, the OECD countries have agreed on a common transfer pricing guidelines known as OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Transfer Pricing Guidelines). These guidelines on transfer pricing only reflect the agreements amongst Government of those countries that are members of OECD (developed countries) and accordingly tend to take care of interest of only developed countries. The guidelines do not give right of taxation to source countries accordingly eroding taxing rights of developing countries.
India requests that the United Nations may consider constituting inter-Governmental Commission (including sub - committees), having representatives from Governments of the developed and developing countries, on various issues relating to International Taxation and Transfer Pricing, to develop guidelines on the basis of consensus amongst Government of all countries, which take care of the interests of the developing countries. Further, in developing such guidelines, the recommendations of the Committee of Experts (1999) that the OECD principles as set out in the OECD Transfer Pricing Guidelines should be followed, must be ignored.
OECD Model Tax Convention and OECD Transfer Pricing Guidelines has been developed on the basis of consensus arrived at by the Government of 34 countries (all developed countries). These guidelines only protect the interests of OECD countries , which are parties to such convention . Since the Governments of developing countries are not party to the Guidelines, it is improper to suggest that they represent international agreed guidance knowing fully well that concerns of developing countries have not been taken care of in the OECD Model Convention and OECD Transfer Pricing Guidelines.
It is inconceivable as to how a standard developed by Governments of only 34 countries can be accepted by Government of other countries as 'standard' of sharing of revenue on international transactions between source and resident country particularly when it only take care of the interest of developed countries and has seriously restricted the taxing powers of source country.