United Nations Practical Manual on Transfer Pricing - Taxpayers in India can postpone payment of tax liability by resorting to litigation
THE Department of Economic & Social Affairs of the United Nations has just published a Practical Manual on Transfer Pricing for Developing Countries.
The United Nations Practical Manual on Transfer Pricing for Developing Countries is a response to the need, oft en expressed by developing countries, for clearer guidance on the policy and administrative aspects of applying transfer pricing analysis to some of the transactions of multinational enterprises (MNEs) in particular. Such guidance should not only assist policy makers and administrators in dealing with complex transfer pricing issues, but should also assist taxpayers in their dealings with tax administrations.
What is Transfer Pricing? "Transfer pricing" is the general term for the pricing of cross-border, intra-firm transactions between related parties. An Example: a profitable computer group in Country A buys "solid state drives" from its own subsidiary in Country B. The price the parent company in country A pays its subsidiary company in country B (the "transfer price") will determine how much profit the country B unit reports and how much local tax it pays. If the parent pays the subsidiary a price that is lower than the appropriate arm's length price, the country B unit may appear to be in financial difficulty, even if the group as a whole shows a reasonable profit margin when the completed computer is sold.
In India the burden of proof to establish the arm's length nature of international transactions is generally with the taxpayer. Once the taxpayer discharges this burden, the burden shift s to the tax authorities to establish that the arm's length price has not been determined in accordance with the provisions of the law or that the information or data used in the computation is not reliable or correct.
The Manual has a section, Emerging Transfer Pricing Challenges in India. The Indian Transfer Pricing Regulations are based on the arm's length principle. The regulations came into effect from 1 April 2001. The regulations provide that any income arising from an international transaction between associated enterprises shall be computed having regard to the arm's length price (ALP).
The manual says, Taxpayers in India can postpone payment of tax liability by resorting to litigation.