The Hindu : Andhra Pradesh / Visakhapatnam News : IT firms cautioned on ‘transfer pricing'

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Saturday, Sep 04, 2010
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Andhra Pradesh

Andhra Pradesh - Visakhapatnam

IT firms cautioned on ‘transfer pricing'

Special Correspondent

It is an important aspect of tax planning and the Act is vague, says expert

Photo: C.V. Subrahmanyam

Expertspeak:Ernst & Young Tax and Regulatory Services Associate Director Pravat Jena delivering a lecture in the city on Friday. —

VISAKHAPATNAM: Information Technology and IT-Enabled Services companies have to be extra cautious in adhering to accounting standards and regulatory compliances while pricing transactions between related entities of a company in India and a foreign country. Ernst & Young Tax and Regulatory Services Associate Director Pravat Jena explaining the transfer prising mechanism said that transactions should be at a reasonable market price. “It is an important aspect of tax planning for such organisations and the Act is vague in this aspect leading to possibility of litigation,” he said.

Interactive session

Speaking at an interactive session on Transfer Pricing and Cloud Computing organised by the Vizag Information Technology Association and NASSSCOM jointly here on Friday, Mr. Jena explained that a number of IT companies enjoying a tax holiday were subjected to a shock five to six years after tax assessment with a notice from tax authorities to cough up to 50 per cent of the tax they saved in a particular year. Explaining the Arms' Length Tax Concept, which meant fairness in showing tax liabilities in international business deals, he said that four years of tax audit experience had highlighted the need for proper documentation of all the business process and deals between connected companies or sister concerns across the border. Any attempt to hush up the nature of deals or trying to exaggerate their work module to be on a par with one of the best in the industry could land them in a tax soup forcing them to cough up crores of rupees in the form of heavy penalties almost a decade after filing returns, he explained. Transfer pricing resolution mechanism set up in the form of a three-member panel comprising three top-level tax commissioners is a useful mechanism provided the panel looked into the grievances of the IT and ITES companies diligently, Ernst & Young Tax and Regulatory Services Associate Director Pravat Jena has said. Others who attended included VITA president Murali Manohar Rao Bulusu, NASSCOM Regional Director (AP) Bidhan Kankate and senior associate Arjun Menon.

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