The move to implement the Advance Pricing Agreement is a serious recognition of the importance of cross-border trade in a globalised economy and would usher in greater tax certainty for foreign investors in the coming years, says R. Chandrasekaran, Group Chief Executive, Technology & Operations, Cognizant.
However, the ‘retrospective amendments' made are poised to introduce significant uncertainty and increase the cost of doing business in India, he adds.
APA is an avenue open for a taxpayer (both residents and non-residents) who proposes to enter into any international transaction with its related party, says N. Madhan, Partner, Southern Region, Batliboi & Co. Through APA, a taxpayer could prefer an application to the Central Board of Direct Taxes (CBDT) and agree with the arm's length price for such transaction in advance. So far, over the last 11 years since the provisions of transfer pricing have been introduced in India, taxpayers having international transactions with related parties would have to go through the rigours of tax assessments and appeals to prove that their transactions are at arm's length.
Through this mechanism, the taxpayers can avoid the litigation as the price is determined and blessed by the CBDT in advance.
The provisions make it clear that the pricing determined by the CBDT is valid for a period of 5 years and is binding on the Income-tax Department.
S. R. Ramaswami, President and Group Chief Financial Officer, Polaris Financial Technology Ltd, feels the Union Finance Minister has sought to broad-based the service tax net and also increased the tax rate from 10 per cent to 12 per cent. This is sure to impact the domestic IT services.