2020 has been an historic year in itself but keeping that a bit aside, it also marked the 20th year since the Transfer Pricing (TP) provisions were legislated into the Indian Income-tax statute. Indian Government had formally introduced regulations around compliance and assessments in respect of cross border transactions in 2001, though TP, as a subject, has been a part of the Indian Income-tax regulations for more than 80 years now.
Over the last 20 years, Indian TP legislation has seen some drastic changes both on the judicial as well as regulatory front. A series of reforms took place from 2013 to 2015 and followed up in 2017 and 2020 with changes in introduction of Safe Harbour Rules, an option to use a 'sixth method, secondary adjustment etc. Important developments were seen in the Finance Act 2020 as regards to profit attribution for permanent establishments, extension of Safe Harbour Rules and APA to PE profit attribution, incorporation of Finance Acts 2019 & 2020 amendments in Final Sec. 92E Guidance Note, CBDT’s release of MAP guidance. On the judicial front, we have seen around 7000+ TP decisions delivered by various Tribunals/ Courts in the last 20 years, a number that beats any other country hands down!
Taxsutra has been quick-witted to provide its readers real time access to TP developments that have occurred in the past few years around the world. Keeping up this tradition, we are delighted to bring to you a special microsite titled “TP@20” which covers judicial decisions around Top 20 litigation issues, insightful articles, some riveting trivia, detailed insights and some more interesting features!
India is emerging as the new ‘global economic hotspot’ according to the International Monetary Fund. For this purpose, it is imperative that India’s cross border and transfer pricing regime is investor friendly and steers away from potential and frivolous litigation.
The Indian Transfer Pricing (TP) Regulations have also evolved over the years, from the Finance Act, 2001 that introduced for the first time detailed TP Regulations in India to the implementation of OECD’s Base Erosion and Profit Shifting (‘BEPS’) recommendations. The introduction of CbC Reporting in the 2016 Union Budget following the release of OECD's BEPS report on Action Plan 13 and the more recent introduction of interest limitation rules in line with BEPS Action Plan 4 in the 2017 Union Budget are just some examples of how the Indian Transfer Pricing Provisions are keeping abreast with the times.
As India joins the global stage with Indian TP regulations reaching maturity and now being in line with the world, Taxsutra takes you on a walk down memory lane to see how India’s last 10 Union Budgets have shaped its transfer pricing policies. The amendments made in transfer pricing have been divided into 4 broad categories - Amendments triggered by judicial precedents, Amendments that have sparked judicial controversy, Amendments to reduce TP-litigation by introducing Alternate Dispute Resolution Mechanisms and Amendments to keep in line with international best practices and BEPS.
We at Taxsutra take you down the memory lane to mark 2 decades of TP legislation in India. As one reflects back upon these years, one can see that the TP litigation landscape has matured over the years - from basic, procedural issues (e.g. use of multiple year data, computation of arithmetical mean, etc.) to more complex issues like location savings, marketing intangibles, management fees etc. - many of these still awaiting resolution before the Indian Courts. In this backdrop, we thought it fit to present to you the Top 20 TP controversies that have shaped the evolution of TP jurisprudence in India over the last 2 decades.