NEW DELHI, Feb 3: Industry body CII today said domestic transfer pricing practices should be aligned with the Organisation for Economic Co-operation and Development (OECD) guidelines in the Budget to remove uncertainties and instill confidence among investors.
“There is a need to frame standard rules in the field of international as well as domestic transfer pricing, so as to rule out uncertainties and build confidence in the minds of investors,” Director General of the Confederation of Indian Industry (CII) Chandrajit Banerjee said.
Further, CII has also recommended to the government to increase the limit for applicability of domestic transfer pricing provisions to cases where the aggregate value of transactions exceeds Rs 100 crore. This should be done in order to keep the focus on large taxpayers, CII said in its Pre-Budget memorandum submitted to Finance Minister P Chidambaram.
Implementing this step will also spare the small taxpayers from following the long list of compliances required in domestic transfer pricing provisions, Banerjee said.
Besides, the payments made towards remuneration of Directors should be excluded from purview of domestic transfer pricing, as there is no clarity as to how ‘comparables’ for services rendered by directors can be benchmarked.
Transfer pricing is a mechanism used by large companies regarding transaction prices between separate entities of the same group. Multinationals are often accused of misusing the system to transfer profits to subsidiaries in low tax nations.
The law requires that goods and services should be sold to subsidiaries by parent companies on an arm’s length basis, meaning the buyer and the seller act independently.
Taxing these units has become a complex area for the Revenue Department, with the government often disagreeing on the profits declared by a foreign company for its Indian unit. (PTI)
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