India to ink 29 bilateral MNC tax deals in sign of softening stance valid business expenditure and hence, that amount would not be treated as taxable income in the MNC’s home country, say the US, thus reducing the possibility of double taxation. India was perceived to be reluctant to ‘give-and-take’ with authorities in other countries on sharing tax revenue, leading to initial pessimism about the APA mechanism’s efficacy. Sources, however, said New Delhi would soon enter into 140 APAs, of which, 29 would be bilateral agreements on taxation of India units of MNCs incorporated in the US, Japan, UK and other EU members. One of the reasons that has raised interest among businesses and other tax authorities in signing bilateral APAs with India is New Delhi’s willingness to introduce a clause in such APAs for renegotiating profit margins and tax liability in India if the fortunes of a specific industry witness a sharp turn. That introduces flexibility to companies to lower the tax burden if profit margins fall, while the agreement broadly guarantees certainty about tax liability for five years. “The automobile industry, for example, is going through a contraction in sales in Europe. If the critical assumptions used in arriving at the arm’s length price of a transaction between Indian and overseas units of an MNC change significantly, the proposed APAs could be renegotiated,” said a person privy to the development.
Posted on: Sat, 31 Aug 2013 06:30:34 +0000
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