Foreign direct investment (FDI), foreign exchange management and transfer pricing laws in India are in limelight these days. For instance, transfer pricing order has been issued against Vodafone India. Similarly, Nokia has been accused of violating income tax and transfer pricing laws of India. Shell India also received a transfer pricing order from Indian tax authorities.
Further, Income Tax Act, 1961 of India also incorporates provisions pertaining to avoidance of income-tax by transactions resulting in transfer of income to non residents and avoidance of tax by certain transactions in securities. Despite all these provisions, the transfer pricing regulatory framework of India needs further clarification form Indian government.
The finance ministry is now in the process of devising clear guidelines for contentious transfer pricing cases, especially for handling the grey areas. We at Perry4Law and Perry4Law’s Techno Legal Base (PTLB) believe that this clarification of the transfer pricing laws and regulations of India would be beneficial for both foreign companies and FDI entities and Indian government.
We also welcome the move of Indian government and Central Board of Direct Taxes (CBDT) for analysing the modalities for handling transfer pricing cases in India. An I-T department’s committee has been assigned with the task of drafting rules for foreign tax credit and it is also looking at transfer pricing issues. The committee will work out the modalities for handling such cases and submit its report to the finance ministry.