The Emerging Perfect Storm of Transfer Pricing Audits and Disputes

MUMBAI, 3 December, 2008: Storms are generally unavoidable but being not proactive in devising techniques to weather such storms could only result in severe damages. This statement is very relevant in today’s transfer pricing world where multinational corporations are facing the most challenging tax environment in the history. 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 global trend. India has witnessed four rounds of extensive transfer pricing audits, with each year bringing a fresh set of challenges. Indian tax authorities have audited more than 1500 cases in the latest round and the adjustments made to the income of taxpayers have been close to INR 5,000 crores. Although taxpayers have experienced some relief from the recent tribunal rulings, the approach being adopted by the tax authorities does not seem to change significantly in favour of taxpayers considering the significant adjustments made to income.

At this stage, which is described as a “Perfect Storm” by PricewaterhouseCoopers, the visit by Garry Stone, PwC’s global transfer pricing practice leader, to India is opportune. His visit primarily relates to sharing global perspectives on alternative dispute resolution techniques of multinational corporations operating in India and showing a path which involves adopting alternative mechanism for addressing litigation on transfer pricing disputes.

During his visit, Garry Stone shall also be launching a publication titled “ The Emerging Perfect Storm Of Transfer Pricing Audits and Disputes”, whichexplains in good detail the global forces that lead to the “Perfect Storm”. The PwC compilation focuses on growing global disputes and the trend of dispute avoidance with articles covering complex topics such as binding arbitration, best practices in global dispute resolution, permanent establishments, advanced pricing agreements and triangular cases. The publication provides important guidance to taxpayers in India on withering the perfect storm by addressing issues on:

  • If the taxpayer’s organisation is at a greater risk and the extent of the risk;
  • If the safeguard taxpayer’s organisation should take against such controversies; and
  • If the taxpayer is already dealing with an issue in a particular jurisdiction, how best it can be ensured that it will not spiral into a global problem.
“From an Indian scenario, proactively addressing these aggressive TP audits would mean adopting alternative routes to resolve transfer pricing disputes.” says Shyamal Mukherjee, leader Transfer Pricing practice, PricewaterhouseCoopers, India.

The new environment places a premium on audit and dispute avoidance techniques for which multinationals are required to adopt a complete and holistic approach which include not only preparation of quality transfer pricing documentation but also sound strategies on tax audits and defence.

“While the landscape is harsh, there is good hope for the taxpayers that the objectivity witnessed through the resolution techniques being adopted globally, and being proactive, shall spill over worldwide to the auditors in the field.” says Garry Stone.

To weather the storm, Multinationals would need to consider these aspects more seriously and cautiously.
ENDS
Notes to Editor:

About PricewaterhouseCoopers
PricewaterhouseCoopers Pvt. Ltd. (www.pwc.com/India) provides industry-focussed tax and advisory services to build public trust and enhance value for its clients and their stakeholders. PwC professionals work collaboratively using connected thinking to develop fresh perspectives and practical advice. Complementing our depth of industry expertise and breadth of skills is our sound knowledge of the local business environment in India. PricewaterhouseCoopers is committed to working with our clients to deliver the solutions that help them take on the challenges of the ever-changing business environment.

PwC has offices in Ahmedabad, Bangalore, Bhubaneshwar, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, and Pune.

“PricewaterhouseCoopers”, a registered trademark, refers to PricewaterhouseCoopers Private Limited (a limited company in India) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
The name PricewaterhouseCoopers is one word, with uppercase P, uppercase C, and all other letters in lower case.