Budget 2024: Key Expectations From a Transfer Pricing Perspective

Particulars

Existing provisions

Expectations

Threshold for applicability of TP provisions

Any person entering into international related-party transactions, exceeding an aggregate value of INR 1 crore, needs to maintain the contemporaneous TP documentation.

The expectation is to increase the said threshold for maintaining the TP documentation, to INR 10 crore.

Requirement of furnishing Accountant's Certificate for non-residents

In cases of income earned by non-resident taxpayers comprising of specified categories such as interest, dividend, royalty and fees for technical services, on which taxes have been appropriately deducted - such non-residents are not required to file income tax returns. However, such non-residents are mandatorily required to furnish the TP Certificate (Accountant's Report) w.r.t. transactions for which income tax return is not required to be filed.

The expectation is that such non-resident taxpayers, who are not required to furnish income tax returns, should be exempted from furnishing the TP Certificate (Accountant's Report).

Concept of arm's length range

In cases, where the number of selected comparable companies is 6 or more, the arm's length range currently used to justify the arm's length price starts from the 35th Percentile and ends at the 65th Percentile.

The expectation is to change this arm's length range to the internationally accepted interquartile range, which starts from the 25th Percentile and ends at the 75th Percentile.

Expediting Advance Pricing Agreement (APA) conclusions

Even though India's APA program is successful, its case disposal rate is notably slow leading to a huge inventory of pending APA applications. Currently, the program does not have any mechanism or guidance that can help fast-track the APA conclusions.

The expectation is to set up a mechanism, which could work towards regulating the maximum timeframe for concluding APAs. For instance, some kind of directive towards APAs with relatively lower value of transactions or lesser complex transactions would be helpful.

Allowability of downward adjustment in case of APAs

Currently, the tax provisions as per Indian laws do not allow giving effect to the outcome, in case the negotiated arm's length price has the effect of reducing the taxable income or increasing the loss (computed, based on books of accounts).

The expectation is to consider the arm's length price as achieved through the APA outcome, irrespective of the fact whether it is lower than book profits or not.

Synchronising TP and Customs

For related-party transactions pertaining to import of goods, the taxpayers are required to establish fair market pricing under both TP as well as Customs Regulations. The purpose of both these regulations is to ensure that correct taxable values are reported on which respective taxes can be levied.

While the intent of both regulations is to achieve the fair market price, the different ways of working, leading to different outcomes, cause undue hardships for taxpayers.

The expectation is to set up a common mechanism or pricing norm, which can provide a middle path that is acceptable under both TP and Customs Regulations, thereby improving the ease of doing business in India.

Re-evaluation of Safe Harbour rules to expand coverage

Existing Safe Harbour rules are restricted to companies with a certain threshold, making them inaccessible to medium or large-scale companies. Moreover, the rates offered under the Safe Harbour regime seem extremely high as compared to comparable benchmarks, making it commercially unviable for taxpayers to adopt.

The expectation is around re-evaluation of Safe Harbour provisions on account of (a) increasing the existing threshold limits so that medium or large-scale companies can also apply for the same (b) rationalising the Safe Harbour rates to bring them closer to comparable benchmarks, with a little premium for achieving certainty.