I-T department recently announced its plans to make advance pricing pacts with Japan and UK. Simply put, it is an agreement made between a taxpayer and the tax department to set and standardize transfer pricing procedures for specific transactions.
UK and Japanese multinationals can certainly take a breath of relief as this much needed initiative is on its way to getting implemented in the upcoming weeks. This agreement will help these corporations to claim tax relief from their home countries. Moreover, I-T department will also be making certain changes in its taxation policies so as to minimize the cases of double taxation. This consequential move will put a brakes to the ever expanding claim amount in the transfer pricing disputes which, as of yet, adds up to a whopping sum of $9.5 billion.
Further, it is being expected that I-T department will enter into similar advance pricing agreements with multinational firms based in US and Europe. Though, it won’t be easy to sign in pacts with a few countries due to the substantial differences in the prevailing norms regarding certain taxation parameters.
One of the spokesperson from the I-T department quoted, “We are in talks with a few countries. But it is a long process and involves negotiations with revenue authorities of the other countries. We will be signing a few bilateral agreements soon.”
The move has been much welcomed by the multinational corporations and is expected not only to resolve the pending transfer pricing disputes but also to check the stemming of new ones.