INDIA Trends and Developments Contributed by: Mukesh Butani, Seema Kejriwal, Pranoy Goswami and Mansi Mathur, BMR Legal
exercise to be a factual matter and held that for the matters involving ALP determination, Income Tax Appellate Tribunal (ITAT) shall be the fact-finding authority and said matters are not appealable before the HC. This ratio decidendi was challenged before the Hon’ble Supreme/ Apex Court (SC). The SC in the case of SAP Labs India Private Limited v the Income Tax Officer (Civil Appeal No 8463 of 2022) overruled the Softbrands ruling and held that while determining the arm’s length price, the tribunal must follow the guidelines pre - scribed under domestic income tax law. One of the immediate implications of this deci - sion would be a surge in litigation concerning such determination as the taxpayer and IRA both can challenge the adverse finding of the ITAT before the HC. Coupled with India’s secondary adjustment rules (discussed further down), this will add to the timeline for settling tax disputes in India, to an already elongated litigation cycle. The law on secondary adjustment is once again in the limelight, following the Supreme Court rul - ing in SAP Labs (discussed above). Additional tax burden owing to secondary adjustments gives additional reason for taxpayers to keep litigating their transfer pricing positions in India. Indian law requires the taxpayer to undertake secondary adjustment in the following scenarios. • Suo-moto Voluntary Adjustment made by the taxpayer in the tax return. • Adjustment made by the tax officer and accepted by the taxpayer. • Adjustment resulting from APA, MAP or Safe Harbour. Recent developments Secondary adjustment
The Indian taxpayer’s associated enterprise repatriates the excess money (difference between ALP determined as per primary adjust - ment and the price at which the transaction is undertaken) within 90 days of the specified date. Failure to do so would lead the excess money (not repatriated to India) to be deemed as an advance by the taxpayer to the AE and an inter - est rate (SBI Base Rate (approximately 10% cur - rently) + 325 basis points for INR transactions, or “6-month LIBOR” 300 basis points for trans - actions other than INR. Thus, it is computed on such excess money till the date such failure continues. If the associated enterprise does not wish to remit the money, the Indian taxpayer has the option of paying additional tax at the rate of 18% tax plus applicable surcharge and cess on such excess money or part thereof (translating to approximately 21%). Where additional income tax is paid by the taxpayer, the taxpayer will not be required to make secondary adjustments and compute interest from the date of payment of such tax. This implies that the taxpayer would, in any case, be required to compute interest up to the date of payment of such additional tax. This heavy additional tax burden implies that it is likely that taxpayers will seek to litigate trans - fer pricing positions all the way to the Supreme Court. Revised safe harbour rules for loan transactions Under revised safe harbour rules, LIBOR has been substituted as noted: • for US dollars, 6-month Term Secured Over - night Financing Rate (SOFR), currently admin - istered by Chicago Mercantile Exchange (CME), increased by 45 basis points;
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