MUMBAI: Settlement of cross-border tax issues, especially transfer pricing, will be easier under the amended India-Singapore tax treaty. Bilateral advance pricing agreements (APAs) and settlement between competent authorities of the two countries of complex and contentious tax issues under the Mutual Agreement Procedure (MAP) route is now possible. This has been introduced under the third protocol to the India-Singapore tax treaty, which was recently signed.
Hitesh Gajaria, chartered accountant and international tax expert, says, “Indian tax authorities had not been accepting applications for MAP and bilateral APAs from Indian taxpayers having associated enterprises (i.e.: parent or subsidiary companies or group entities) in Singapore. Once the protocol, which has introduced Article 9(2), is ratified it will help in resolving not just transfer pricing issues but other complex issues also.”
He illustrates: For instance, MNCs commonly set up regional HQ companies in Singapore, owing to the reasonable domestic tax rates and other concessions available. Regional HQ companies act as centralised buying or sales hubs, or provide management services. Sometimes these arrangements result in tax issues in countries where group companies are located, including India.
“If Indian tax authorities have sought to tax a portion of purchase or sales carried out via the Singapore company or have disputed management services cross charges, the issue can now be settled amicably under MAP,” explains Gajaria.
Nearly 100 cases, where the disputed tax was Rs.5,000 crore, were resolved a few months ago by the competent authorities of India and the US under the MAP route. “With Singapore also being an important jurisdiction for business with India, MAP will be extensively used,” says the CFO of an MNC.
APAs settle transfer prices and transfer pricing methods for transactions entered into by an Indian company with its overseas affiliates in advance and provide certainty for up to nine years. This mitigates transfer pricing litigation. A bilateral APA is an agreement entered into not only with Indian tax authorities but would also involve the Singapore tax authorities and would prevent double taxation.
Over the past four years, India has concluded 117 APAs with various countries (which include seven bilateral APAs).
Credits ET Realty