Extend transfer pricing timelines due to Covid: Multinationals and their tax advisors tell government

Some of the tax advisors have also reached out to the finance minister and the Central Board of Direct Taxes (CBDT) in this regard.

Transfer pricing is a mechanism that determines the price an entity can charge from another group entity.

Multinationals while providing or receiving services to group entities based outside India have to adhere to Indian transfer pricing regulations.

Multinationals are required to submit their data to the taxman and the latter is expected to assess or scrutinise it every year.

There is now confusion on the due date of completing transfer pricing assessment as to whether it was this July end or next year, say tax experts.

“Many multinationals had assumed that the government’s notification to postpone several due dates due to pandemic also applied to the due date for transfer pricing assessments. An internal office memorandum of the tax department has reiterated that the due date is July end. Further, to meet this crunch timeline, notices are being issued with a short timeframe being provided for the response,” said Kunj Vaidya, Partner, Price Waterhouse & Co LLP. “Many companies may not be able to abide by these timelines or the assessment might get concluded in a hurry, which could lead to additional litigation and related costs.”

The revenue department has started slapping notices for assessment.

“The correct due date for conclusion of TP proceedings should be 31st July 2022 and last date for completion of assessment should be 30th September 2022,” Karnataka State Chartered Accountants Association said in a letter to Finance Minister Nirmala Sitharaman.

“Extend time limit to complete Transfer pricing assessment proceedings for AY 2018-19,” said a letter written by The Chamber of Tax Consultants, a Mumbai based association to the CBDT chairman.

In normal circumstances assessments which include transfer pricing proceedings have an additional time of 1 year to complete as compared to assessments without transfer pricing issues, say tax experts.

Insiders say that even the clarification by CBDT that specified July 2021 as the timeline also came late in the day. “Clarification came only in the first week of July leading to chaos and sudden work pressure. Also, this interpretation is absurd as the proceedings with and without transfer pricing issues now have the same date of limitation,” said a tax expert requesting anonymity.

This also puts a question on the legal validity of all transfer pricing proceedings that commenced after sept 20 and would lead to litigation said another person in the know.