Bilateral APAs: Truce In The Offing?
By: Manisha Gupta, Deloitte Haskins & Sells
By: Samir Gandhi, Leader, Transfer Pricing & Manisha Gupta, Senior Director, Deloitte Haskins & Sells
On 13 September 2013, Tax Sutra, jointly with Deloitte, organized an interaction of Industry professionals with Mr. Akhilesh Ranjan (Joint Secy, FT & TR and Indian Competent Authority) and Mr. Kamlesh Varshney (APA Commissioner), which was attended by more than 100 CFOs/tax heads from industry.
In an open and transparent interaction with the participants, Mr. Ranjan emphasized that there are bound to be disputes due to difference in interpreting laws but the tax authorities were ready to engage in continuing dialogue with taxpayers to minimize/avoid litigation. He opined that India needs to maintain the integrity of its tax base and get its fair share in the global revenue for which tax needs to be paid where the value is added. The message was clear and simple and for all to see - India is different but not difficult; there are no instant answers for several issues but the authorities are open to constructive dialogue with taxpayers. The key takeways from his interactions are –
- Fruitful discussions have already taken place with the Competent Authority (CA) of US and UK. Discussions on bilateral APAs and approximately 200 MAPs which are outstanding with the US should now move on rapidly. Expects 4-6 meetings with US CA to take place over the next year.
- Government would look into India’s position on unavailability of bilateral APA to taxpayers in the absence of corresponding adjustment in clause Article 9(2) in some of India’s treaties i.e. France, Singapore, Germany and South Korea.
- Final Safe harbor rules are expected shortly.
-Safe harbor margins are not arm’s length price margins and hence not binding for MAP/APA/ assessment processes. CBDT may examine issuing a clarification, if required.
- Guidance given in respect of Contract R&D service centres with insignificant risk (Circular 6/2013 dated 29 June 2013) can also apply for the purpose of APA.
- India strongly supports OECD’s Base Erosion and Profit Shifting project and looks to a successful and rational completion.
On Revenues perspective in connection with APA experience, APA Commissioner informed that the APA team had undertaken a number of confidence building measures. Despite a large number of applications (i.e. 146), the APA team has ensured that each applicant is always heard and site visits per convenience of taxpayers are undertaken. He also clarified that though there is no specific “firewall” provision in the APA scheme, the APA team appreciates the sensitive nature of certain information which is accordingly kept in the personal custody of APA team members. It was also clarified that taxpayers could file APA application to determine Permanent Establishment attribution. The APA team’s endeavour has been to complete the APA negotiations in a time bound manner but it is imperative to note that this involves factual data gathering through site visits, economic analysis which culminates with the drafting of the agreement. In a number of cases, site visits and economic analysis have been completed but it would take time before the first APA is signed as it needs to be cleared by the CBDT and also vetted by the Law Ministry.
Deloitte Speakers, Mr. S P Singh and Mr. Samir Gandhi welcomed the APA process and safe harbor rules. It was appreciated that the APA team has been positive in their interactions and transparent in their approach. It was urged that the APA team should understand and appreciate the business realities of the taxpayer and the approach followed by the TPO/draft safe harbor rules should not be the starting point or the guiding factor during the APA process. They also urged Revenue to consider “roll back” of APA to prior years. On safe harbour, it was suggested that Revenue should consider allowing companies to opt for safe harbor at the beginning of the year itself which would help mitigate the onerous transfer pricing documentation compliance requirements.
In conclusion, it may be said that the thrust of the engaging and encouraging interaction was that trust needs to be built through a continuous dialogue between the tax authorities and taxpayers to minimize as well as resolve disputes; moving away from a confrontational approach to a collaborative approach.