With a view to end cross-border taxation disputes and encourage investments, India and Japan will soon sign the advance-pricing agreement (APA), a top finance ministry official said today.
"I am happy to mention here that APA between India and Japan in a particular company's case has been finalised and it would be inked very soon. So this will bring lots lot clarity between our tax perception and the activity of that particular company. And agreement is between tax authorities of India and Japan," Revenue Secretary Shaktikanta Das said at an event.
He said it augurs well for investors from Japan who are looking at India following a very successful visit there by Prime Minister Narendra Modi.
The Central Board of Direct Taxes (CBDT) has so far signed five APAs with different multinational companies and plans to enter into more such pacts.
The government has so far received more than 378 applications from companies for the mechanism, which will allow MNCs to seek guidance on pricing of goods and services in advance.
An APA, usually for five years, is signed between a taxpayer and the tax authority (CBDT) on an appropriate transfer pricing methodology for determining the price and ensuing taxes on intra-group overseas transactions.
Transfer pricing -- transaction prices between separate entities of a large company -- has generated much heat in connection with investments by large MNCs like Vodafone, Shell, WNS and Nokia.
MNCs are often accused of misusing the system to transfer profits to their subsidiaries in countries that have low tax rates.
The law requires that goods and services be sold to subsidiaries by parent companies at arm's length price -- the price at which goods are traded between unconnected companies.
Taxing these units has become a complex area for the revenue department, with the government often disagreeing on the profits declared by a foreign company for its Indian unit.
Though the provision for APA was included in the proposed Direct Taxes Code (DTC) Bill, the Centre had brought forward its implementation by including it in Finance Bill, 2012.