Transfer pricing raises Rs 5,000 cr tax demand | business | Hindustan Times
Today in New Delhi, India
Jul 28, 2017-Friday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Transfer pricing raises Rs 5,000 cr tax demand

The Income Tax Department's recently concluded cross-border transfer-pricing audit of 1,500 companies for 2004-05 has lead to additional tax demand of close to Rs 5,000 crore.

business Updated: Dec 03, 2008 21:09 IST
HT Correspondent

The Income Tax Department's recently concluded cross-border transfer-pricing audit of 1,500 companies for 2004-05 has lead to additional tax demand of close to Rs 5,000 crore.

Over 55 per cent of the additional tax demand was from companies in the automobile and services sectors, according to Shyamal Mukherjee, Executive Director at PricewaterhouseCoopers (PwC), a leading consulting firm. The tax liability About
50-60 per cent of the companies, where the Income Tax authorities conducted transfer pricing audits,

Transfer price is the assumed price of a product or a service a company charges to a related entity overseas.

The most affected in the services sector are the captive back-office operations of foreign companies and automobile and auto component manufacturers. All companies which have related-party transactions of Rs 15 crore and above are taken up for transfer pricing audit. “The threshold is too low,” said Mukherjee.

Garry B Stone, PWC’s Global Transfer Pricing Leader, said multinational companies are facing the most challenging transfer
pricing environment. “This is primarily due to the aggression adopted by tax authorities globally in conducting extensive audits leading to material adjustments to income generated from related party cross-border activities. Indian tax
authorities are for sure not an exception in following this trend.”

This is the fourth year of transfer pricing audits since India introduced a law on this. The number of cases and the amount of additional tax demanded has continued to rise. Transfer pricing audits happen with a two-year lag. The audits for 2005-06 would happen next year and for 2006-07 a year later.

Mukherjee said almost all of the companies which face additional tax demands on account of transfer pricing go into appeals and the Income Tax Appellate Tribunal has given rulings in favour of companies.