| Companies that transfer assets from one arm to another have reason to be pleased because the tax authorities that fix the arms length pricethe fair value at which assets are transferredwill, following a court ruling, have to now provide them an opportunity to present their pricing logic.
Until now, Indias tax authorities didnt have to take the companies view into account.
Its a landmark ruling that will give the taxpayer a chance to present his case, said Tarun Arora, executive director at PricewaterhouseCoopers Pvt. Ltd. Tax authorities are going to be more cautious...generally, the opportunity is given (to the companies) but in some cases they might not give it.
This is referred to as transfer pricing and the norms seek to ensure that assets are transferred at a fair price, such that the goods and services are sold at an arms-length price, a price the company would charge an unrelated entity. The purpose is to make companies reflect the fair amount of profit, and not avoid tax.
The judgement came last week following individual petitions filed by Moser Baer India Ltd, HCL Technologies BPO Services Ltd, HCL Technologies Ltd, Haier Appliances India Pvt. Ltd, GlobalLogic India Pvt. Ltd and Kamla Dials and Devices Ltd before the Delhi high court.
In all the cases, taxpayers challenged the orders passed by the tax authorities on the common ground that the ALP of their international transactions was determined without granting an oral hearing.
The court set aside the orders issued by tax officers, where ALP was determined without consulting the taxpayers, and they were asked to start the proceedings again. Since computation of ALP involves detailed analysis, tax experts say, the decision to consider tax documents filed by the companies will help them in justifying their price computation for transferring assets among its arms.
The ruling also stated that a brief discussion following a show-cause notice should not be considered as a personal hearing. A spokesman of the Central Board of Direct Taxes, the apex tax authority, declined to comment on the judgement.
Considering that some of these cases are timebound, the ruling will ensure that tax authorities do not rush through such cases at the end of the year, said Sudhir Kapadia, a Mumbai-based tax expert with consultancy firm Ernst and Young.
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