MNC woes: I-T dept’s claims on transfer pricing up 85% in FY12
The sharp increase in these tax claims comes at a time when observers say the increasing tax scrutiny in Asian economies is slowing the pace at which multinationals expand their business in the continent. “Over half (53%) of multinationals in Asia believe their expansion plans have been curbed by overzealous tax authorities,” said a survey based on interviews of CFOs done by tax consultancy firm Taxand.
The government intensely scrutinises the price at which the Indian arm of a global firm trades in goods or services with its parent – called the transfer price – in order to prevent companies from showing lesser taxable income here by way of underpricing of goods or services sold or overpricing of purchases. The idea is to prevent shipping of profits to a low-tax country.
The tax claim made last fiscal pertains to assessment year 2008-09 as transfer pricing audit typically happens with a lag of about 30 months. In 2010-11, the Income Tax Department had held that the taxable income of Indian units of MNCs was Rs 24,111 crore ($4.3 billion) more than what companies had declared as their income. That
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