Govt. announces APA rules to avoid MNC tax disputes

Govt. announces APA rules to avoid MNC tax disputesThe government of India on Friday announced Advance Pricing Agreement (APA) rules to avoid tax disputes with multi national companies (MNCs) by allowing these companies to ascertain in advance their taxation liability regarding cross-border transactions in group entities.

The Finance Ministry announced the APA rules, and said it would let the companies to seek guidance on pricing of goods & services in advance for calculating their tax liabilities under the transfer pricing system.

Rahul Mitra, chief of transfer pricing at PwC, said, "It is always preferable to get an agreement before you enter into a transaction."

Vijay Iyer, Partner & Transfer Pricing Leader at Ernst & Young, said that the notification of the rules would provide taxpayers with better lucidity on the APA programs.

The finance ministry has announced the APA rules at a time when foreign investors are dissatisfied with the tax policies followed by Indian government in the past few months. Nearly
50-60 per cent of the tax litigation in India is related to transfer pricing.

Currently, around Rs. 60,000 crore is stuck in litigation on account of dispute over pricing of goods & service when these goods & services cross borders.

A great number of tax disputes occur due to differences in prices of the goods & services which are moved between different countries.