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India's Transfer Pricing Directorate Rakes In USD5bn Extra Tax

Friday, February 19, 2010

In an inaugural address for an International seminar on transfer pricing, Indian Finance Minister Shri Pranab Mukherjee said that the Directorate of Transfer Pricing had made adjustments of INR230bn (approximately USD5bn) in less than 10 years.

"Being aware of the transfer pricing practices, India introduced the transfer pricing legislation in the year 2001. The transfer pricing regulations have come of age in India – both in terms of quality of audits as well as the revenue generated for the Government," said Mukherjee.

"The framing of Rules for transfer pricing purposes, which allocates profit to tax jurisdictions, is an important area which needs cooperation and consultation amongst south-south countries and also amongst north-south countries to have a broad guideline to prevent tax disputes amongst the countries," said the Minister.

He said that the effective and efficient administration of transfer pricing provisions had a policy and an administrative dimension. The tax policy reform could be achieved in a much shorter time frame and it was also generally easier to manage with fewer resources than a reform of revenue administration. This was the reason to focus more on the design of a modern tax policy system.

Mukherjee thought that specialized skilled manpower was mandatory. In general, transfer pricing resources had increased or were increasing in most of taxing jurisdictions. India was, according to the minister, a relative newcomer to transfer pricing enforcement, and was “gearing up” its capabilities quickly by increasing the number of experts to 39 from 12 in 2006 for administration of transfer pricing. The increase in transfer pricing resources had opened new challenges of development and training of skilled manpower, he said.