TRANSFER PRICING REGULATIONS

Opinion - Financial Policy

Some ‘pain points’ for the Finance Minister

With the Finance Minister in the midst of a summation of earlier Budgets, here are some irritants in the tax system that need to be addressed at the earliest, to prevent harassment of the genuine taxpayer.

G. Srinivasan

The Finance Minister, Mr P.Chidambaram, is in the midst of making a summation of all his earlier budgets, for Union Budget 2008-09. With the UPA Government facing general elections in 2009, expectations run high of a populist Budget, also reinforced by the results of the recent Gujarat and Himachal Pradesh assembly elections where the BJP cruised back to power comfortably. A cursory glance at the mid-year review of the economy, presented to Parliament by Mr Chidambara m on the last day of the winter session, and the subsequent endorsement to the Eleventh Plan by the National Development Council on December 19, showed that for greater inclusive growth, there is a clear need to foster the fiscal space.
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Transfer pricing
Under Sections10A and 10B, tax exemption is granted on the incomes of 100 per cent export-oriented units (EOUs) and units in special economic zones and software technology parks (STPs) doing IT business to service overseas customers. But the provision of transfer pricing, which is made applicable to these units, poses difficulties. There is scarcely reason to subject these cases to transfer pricing since their entire income is exempt. Yet even these units are made to fork out tax because of the adjustments made by the transfer-pricing officer to declared income. Hence units claiming exemptions u/s 10A and 10B should be removed from the purview of transfer pricing regulations.
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FROM V SWAMINATHAN

vswami@vsnl.com
----- Original Message -----
From: ramsunders
To: blfeedback@thehindu.co.in
Sent: Wednesday, January 09, 2008 9:12 AM
Subject: Fw:

----- Original Message -----
From: ramsunders
To: blfeedback@thehindu.co.in
Sent: Wednesday, January 09, 2008 9:03 AM
Ref. - TRANSFER PRICING:

IT IS FOR ANYONE TO SEE THAT, -

Ø MOSTLY, IN THE TREATIES, THERE ARE PROVISIONS ESPECIALLY DEALNG WITH (A) BUSINESS PROFITS, AS ALSO CERTAIN OTHER INCOME, AND (B) “ASSOCIATED ENTERPRISES”.

Ø AS PER THE SETTLED LEGAL POSITION, THOSE SPECIAL TREATY PROVISIONS SHOULD HAVE AN OVERRIDING EFFECT / OUGHT TO PREVAIL, IF / AS THE CORRESPONDING PROVISIONS OF THE IT ACT ARE NOT BUT INCONSISTENT/ INCOMPATIBLE THEREWITH.

ON THE AFORESTATED PREMISE, A MORE BASIC BUT “ACUTELY PAIN (FUL) POINT” REQUIRING TO BE POSED TO THE HONOURABLE FM IS THIS:

WHY AT ALL THE TRANSFER PRICING REGULATIONS AS PER THE IT ACT MUST BE OF RELEVANCE SO AS TO APPLY, IF THEY PRIMA FACIE ARE INCONSISTENT WITH THE SPECIAL PROVISIONS OF THE COMPREHENSIVE TAX TREATY INDIA HAS WITH THE COUNTRY OF WHICH THE NON-RESIDENT (FOREIGN) ENTERPRISE (IN RELATION TO WHICH THE OTHER ENTERPRISE, BEING A PARTY TO AN INTERNATIONAL TRANSACTION, COMES TO BE TREATED AS AN “ASSOCIATED ENTERPRISE”) IS A RESIDENT?

Going by past experience, it seems quite unlikely that, the relevant provision (the Proviso) having been consciously brought in on the statute, any such suggestion as made in the write-up for an amendment of the law would be favorably looked into, or even been made a serious note of, by the government.

Instead, should not the concerned assessees try and seek legal recourse by resting/ pivoting their pleas on the treaty provisions!

NOTE: Some of the points made in my published articles on the subject of transfer pricing (see the Taxmann website) may be found to provide some clues.