Sources told The Indian Express that central board of direct taxes (CBDT) is in the process of creating several posts at higher level to deal with the sudden rise in number of cases of transfer pricing. The directorate of international taxation will be expanded to meet the challenge.
The tax disputes especially those pertaining to transfer pricing with multi-national companies have grown significantly, with Vodafone, Nokia, Microsoft and Shell among several others topping the list.
Embroiled in over Rs 20,000 crore tax dispute, Vodafone has initiated international arbitration with the government while Finland-based Nokia has expressed its intent to follow the suit.
According to data available, of about 3,200 cases considered for transfer pricing auditing in 2012-13, there was an adjustment of Rs 70,000 crore for 1,600 cases with Mumbai leading the pack and followed by cities like Bangalore and Hyderabad, which have a high concentration of the IT industry and financial services.
The two cities saw a transfer pricing adjustment of over Rs 6,000 crore each during the year. In 2011-12, there was an adjustment of Rs 44,531 crore for 1,343 cases.
At present, there are 10 directors of income tax for transfer pricing while seven for international taxation, stationed in Delhi, Mumbai, Chennai, Bangalore, Kolkata, Pune, Ahmedabad and Hyderabad.
Headed by a director general, the division deals with taxation issues pertaining to entities having cross-border transactions. Apart from determining the tax liability of a non-resident or a foreign company, it undertakes transfer pricing analysis to determine the Arms Length Price of such transactions.
The department needs more trained officers in international taxation, especially in transfer pricing (TP) as this is the new area of focus for the department. We are also planning to train the officials in TP cases, the sources said.
As such, the department started issuing guidance notes to assessing officers to standardise the procedure for transfer pricing adjustments across the country. It also laid down broad principles for audits, in line with international practices and court rulings.