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Transfer Pricing (TP) and Dispute Resolution reports the complexity, valuation and administrative tinges, and cultural impacts of resolving this important cross-border issue when tax disputes arise. In recent years, transfer pricing has become in financial terms the most important tax issue faced by multinational companies and tax authorities worldwide.
As experienced in recent years, when tax authorities are challenged for revenue, the handling of these issues requires great care, skill, creativity and a true awareness of the ramifications confronting each tax jurisdiction. The varied approaches to the administrative resolution of these issues, including specific alternative dispute resolution mechanisms and the effective uses of Advance Pricing Agreements; correlative adjustment procedures in the event of transfer pricing modifications; cross-border exchange of information concerns; & how to proceed to litigation if all else fails administratively. Unfortunately, today litigation is on the rise in numerous jurisdictions and the presumption of an administrative resolution is no longer correct.
Transfer Pricing regulations, companies are commonly subject to audits by TP officers wherein Transfer Pricing investigations could be rather time-consuming & which might involve a substantial commitment of resources for assembling the paperwork, preparing responses and dealing with local tax authorities.
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A major risk international business] transactions face is potential double taxation by multiple tax authorities. Most tax treaties negotiated between countries provide a mechanism to avoid double taxation. Multinationals can file a Mutual Agreement Procedure (MAP) claim requesting the relevant fiscal authorities to resolve disputes concerning double taxation.
Safe Harbour (“SH”) provisions under TP regulations with a view to reducing litigation was introduced. SH is defined to mean circumstances in which the income tax authorities shall accept the transfer price declared by the taxpayer subject to the fulfillment of certain prescribed conditions. The eligibility, feasibility and period for which the SH option is to be exercised, assist with the procedural requirements relating thereto, & the same requires to comply with the prescribed SH norms.
An Arm’s Length Price is an agreement between the tax authorities and the taxpayer that determinesin advance the most appropriate TP methodology or the Arm’s Length Price (“ALP”) for the covered intercompany international transactions. The same has brought greater certainty in these taxing times by stemming the tide of burgeoning controversies and drawn out TP litigation. The Indian TP regulations provide the option of unilateral/bilateral/multilateral APAs with optional pre-filing consultations.Rollback provisions have also been introduced in the regulations and taxpayers now have an option to exercise Rollback provisions for up to four financial years preceding the first year covered under the APA.
The factors driving intensified scrutiny of transfer pricing arrangements are beyond the control of most companies, but the risks to your organization are very real. They include:
Read our article:GST Appeals and Dispute Settlement
Enhanced tax transparency, tax efficiency, and improved tax dispute resolution mechanisms, driven in part by the OECD’s (The Organisation for Economic Co-operation and Development) base erosion and profit shifting initiatives. In this worldwide tax environment, taxpayers are facing a number of new challenges that are in turn creating increased uncertainty.
The source of these challenges is primarily attributable to enhanced enforcement actions by tax administrations to increase revenues and address budget gaps. These actions are focused on engaging in aggressive audit and examination tactics, implementing unilateral measures that diverge from international standards, promulgating transparent reporting requirements, and developing robust risk assessment tools. As a result, there has been a substantial increase in the number and size of tax audits and disputes worldwide, placing a further strain on the resolution of treaty-related disputes and increasing the risk of double taxation.
Bigger the risk & uncertainty causes taxpayers to re-evaluate their tactic to proactively prepare for and resolve tax audits and disputes. This necessarily requires a multidisciplinary approach that utilizes tax and legal service providers with a global reach that is highly credentialed and well equipped to appropriately assist taxpayers in all stages of the tax dispute and controversy lifecycle.
Read our article:An Overview of New Legacy of Dispute Resolution Scheme
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