Business Economics & Services Team (BEST)
Dedicated Division for Transfer Pricing -Can It Stem Disputes?
The government has valiantly announced that it is contemplating setting up a dedicated unit for redressing grievances related to transfer pricing. It may be soothing to the foreign investors to hear such news since many cases are pending involving crores of rupeees. The assertion of the government to set up such a unit may be an admission that the Revenue has been over aggressive in dishing out over pitched assessment and with that appeasement policy it may be thinking that foreign investors can be hawkish on India.
Is it an over reaction from the part of the government? Admittedly, a scientific tax regime should be predictable, certain and easy to comply with. That does not mean that one has to bend too much to accommodate all wish lists of investors. Ours is not a tax haven or a banana republic that shut eyes to all omissions and commissions. A look at the facts of the cases regarding transfer cases can be revealing. There are enough proofs to construe that routing of investment through tax havens , doctrine of look in as against look through concepts, definition of underlying capital assets, preponderance of different views among the jurists and different layers of courts etc are hinging on myriad ways of interpretation rather than based on tenets of law. Different courts at different times can come out with varied interpretations, which will make the issue more complicated and can create complex situations.
What is therefore important is to have a set of rules and laws which are crystal clear and and above interpretations, which are more subjective rather than based on statutes. India has to closely examine the similar laws in other countries regarding tranfer pricing rulings in complex areas like legal validity of funds flowing from tax havens for investment, flow of private equity funds and their sources, what is the tax liability of a transaction between two parties outside the country on an underlying capital asset in a third country, possible mala fide intentions while routing the funds from tax haven countries, how does it differ from money laundering and the like.
To believe that there is a political mandate to do anything to attract investment into the country is a misplaced pitch, to say the least. There is a powerful group within the ruling alliance, which looks at undue haste to attract investment with a tinge of suspicion. Their argument is that domestic industry has to be pepped up and that should receive priority rather than declaring India a hub for all kinds of investments. It is rather unfortunate that we hear only allurements to the foreign capital. What about nurturing Indian industry? What is the ultimate objective of Make in India? Could we make a pitch for creating 100 Indian strong Indian brands in a year like 100 smart cities?What about the Indian brands that dominated in the Indian landscape in the 1990's and before that. All those brands had bitten the dust. Nobody is taking about Kelvinator refrigerator or Fiat car. Indian made cars have stopped production, except the Tatas, which the market share indicates is not a big shake. It is easy to say that they could not withstand competition from outside. But what have the successive governments did to nurture them, spot their sickness in time and take timely action to rectify them. Instead, the successive government machinery collided with them to bleed the industries and to make a beeline of sick companies, which had considerable stake of the government and that is tax payers money.
Also, the government's initiative to streamline the transfer pricing hiccup should pass the test of judicial intervention. It is not necessary that the government should file against the tax liability of a multitnational company. Any citizen can file a PIL against it and the court has to take cognizance of it on its merit. Cases can be struck up there also.
What is important for the government machinery to have a balanced approach for inviting the FDI and not a policy: FDI is a be all and end all.
Dedicated Division for Transfer Pricing -Can It Stem Disputes?
The government has valiantly announced that it is contemplating setting up a dedicated unit for redressing grievances related to transfer pricing. It may be soothing to the foreign investors to hear such news since many cases are pending involving crores of rupeees. The assertion of the government to set up such a unit may be an admission that the Revenue has been over aggressive in dishing out over pitched assessment and with that appeasement policy it may be thinking that foreign investors can be hawkish on India.
Is it an over reaction from the part of the government? Admittedly, a scientific tax regime should be predictable, certain and easy to comply with. That does not mean that one has to bend too much to accommodate all wish lists of investors. Ours is not a tax haven or a banana republic that shut eyes to all omissions and commissions. A look at the facts of the cases regarding transfer cases can be revealing. There are enough proofs to construe that routing of investment through tax havens , doctrine of look in as against look through concepts, definition of underlying capital assets, preponderance of different views among the jurists and different layers of courts etc are hinging on myriad ways of interpretation rather than based on tenets of law. Different courts at different times can come out with varied interpretations, which will make the issue more complicated and can create complex situations.
What is therefore important is to have a set of rules and laws which are crystal clear and and above interpretations, which are more subjective rather than based on statutes. India has to closely examine the similar laws in other countries regarding tranfer pricing rulings in complex areas like legal validity of funds flowing from tax havens for investment, flow of private equity funds and their sources, what is the tax liability of a transaction between two parties outside the country on an underlying capital asset in a third country, possible mala fide intentions while routing the funds from tax haven countries, how does it differ from money laundering and the like.
To believe that there is a political mandate to do anything to attract investment into the country is a misplaced pitch, to say the least. There is a powerful group within the ruling alliance, which looks at undue haste to attract investment with a tinge of suspicion. Their argument is that domestic industry has to be pepped up and that should receive priority rather than declaring India a hub for all kinds of investments. It is rather unfortunate that we hear only allurements to the foreign capital. What about nurturing Indian industry? What is the ultimate objective of Make in India? Could we make a pitch for creating 100 Indian strong Indian brands in a year like 100 smart cities?What about the Indian brands that dominated in the Indian landscape in the 1990's and before that. All those brands had bitten the dust. Nobody is taking about Kelvinator refrigerator or Fiat car. Indian made cars have stopped production, except the Tatas, which the market share indicates is not a big shake. It is easy to say that they could not withstand competition from outside. But what have the successive governments did to nurture them, spot their sickness in time and take timely action to rectify them. Instead, the successive government machinery collided with them to bleed the industries and to make a beeline of sick companies, which had considerable stake of the government and that is tax payers money.
Also, the government's initiative to streamline the transfer pricing hiccup should pass the test of judicial intervention. It is not necessary that the government should file against the tax liability of a multitnational company. Any citizen can file a PIL against it and the court has to take cognizance of it on its merit. Cases can be struck up there also.
What is important for the government machinery to have a balanced approach for inviting the FDI and not a policy: FDI is a be all and end all.
