India will introduce new tax rules on Wednesday, the finance ministry said, in a move aimed at reducing litigation with multinational companies over transfer pricing.
Transfer pricing is a practice used by multinational companies around the world to reduce their tax burden by paying for services across borders between their different units.
There has been a surge in tax disputes related to the practice over the past year as India seeks to maximize revenue to meet tough fiscal deficit targets.
Revenue secretary Sumit Bose said the new rules would clarify the tax liability of companies.
“It will be applicable for five years beginning assessment year 2013/14,” Bose told reporters.
The new regulations are expected to enable tax authorities to accept companies’ transfer pricing claims without further scrutiny in some cases.