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Transfer pricing salary12/30/2023 ![]() ![]() introduction of a one-time dispute resolution scheme for income tax matters in 2020.introduction of advance pricing agreement (APA) whereby Indian companies can pre-agree with the tax authorities about the price or basis of pricing transactions with their related parties abroad for as long as nine years.issuance of safe harbour rules for certain companies in information technology and pharma sector.The government, too, has recognised this issue and taken steps to mitigate this by providing alternative avenues to mitigate this. The information technology sector, which has been the shining star of Indian entrepreneurship over the past three decades, has seen significant cases of litigation under transfer pricing provisions. Even today, transfer pricing cases feature among the most litigated before the appellate authorities. Examples are excessive royalty payment to foreign group companies, corporate guarantee fees, brand promotion expenses, situs of IP, etc. Several interesting issues have been heavily litigated in India under the transfer pricing provisions. ![]() This further limits the interest deduction, besides the arm’s length interest test requirement. Debt transactions involving high leverage in India are targeted additionally by focused thin-capitalisation rules (rules made to prevent businesses from using debt financing or international debt shifting for tax planning reasons). Certain capital transactions such as capital infusion may also get covered as per the recent budget proposals surrounding angel tax (seeking to tax excess premium on allotment of shares to non-residents), though they may not have a material impact for businesses so long as valuation aspects are appropriately adhered to. The application of transfer pricing rules extends to all cross-border transactions such as royalty payment, purchase and sale of goods and intellectual property transfer. The transfer pricing framework here also levies additional tax on notional interest computed thereon or alternatively necessitates payment of incremental tax. It requires actual repatriation of the flow of cash to India because it treats the arm’s length adjustments as a deemed loan transaction. Notably, India’s transfer pricing framework under the Income Tax Act, 1961, not only aims at enhancing the income and tax based on the arm’s length differences but also goes one step further.
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