Recourse to MAP and bilateral APA rollback available under revised tax treaty: PwC

MUMBAI: The recent changes in the India and South Korea Agreement for Avoidance of Double Taxation provides recourse to taxpayers of both countries to apply for Mutual Agreement Procedure (MAP) in respect of transfer pricing disputes, and also to apply for bilateral Advance Pricing Agreements (APA) for APA period beginning FY 2017-18, a PwC research said.

An APA is mainly an agreement between a tax payer—mostly multinationals— and tax authority— CBDT in India’s case—where the transfer pricing methodology is determined. The methodology to calculate taxes could then be used for an agreed period of time on the tax payer’s future international transactions.

The availability of rollback option clearly enhances certainty for such taxpayers for up to nine years, and provides a great opportunity for them to seek assurance on their past years’ transfer pricing positions as well, the PwC research added.

Transfer pricing disputes are mainly related to the calculation of profit made by multinational companies and how they have been shifted to their parent. Many firms have gone to court, challenging the government’s transfer pricing calculations.

“All transfer pricing disputes where the above – mentioned three years are not completed prior to 12 September 2016, are eligible for MAP under the revised treaty. Accordingly, taxpayers who are contemplating a MAP application should bear in mind this timeline in mind,” PwC research added.

For the first time the government may end up resolving about 100 transfer pricing issues by signing advance pricing agreements (APAs) with multinationals this fiscal, people in the know said. Till February end, the government has signed about 75 APAs with multinationals, and expects that more transfer pricing issues could be resolved by the end of March, this year.