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Direct Tax Code 2009 ASSOCHAM Conference 13th
October, 2009
Rahul Mitra
PwC
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• Treaty Override Transfer Pricing

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Treaty override

• Currently ? favourable between treaty or domestic
  law, prevails
• DTC ? tax treaty or domestic law ? later in time
  to prevail
• Lex posterior derogat legi priori
• Existing tax treaties (gt 80 nos) overridden after
  DTC ?
• Possible savings clause in DTC ? ? does it solve
  problem ?
• Even otherwise, can existing treaties be
  unilaterally overridden ?
• What impact would it have ?
• WHT rates PE CGT exemption MAP etc
• Vienna Convention
• Indian Constitution

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Treaty override Example
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Transfer pricing

• Framework broadly in line with existing law
• Associated Enterprises ? threshold limit for
  association through shareholding reduced to 10
  from existing 26
• Move towards risk based assessment ? each
  transaction of a taxpayer may not be routinely
  picked up for scrutiny
• Date of compliance for Form 3CEB documentation
  study advanced to 31st August from 30th September
• Penalty for non compliance slashed significantly
  ? INR 50,000 200,000 from 4 of transaction
  value

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Transfer Pricing

• Advance Pricing Arrangement (APA) machinery
  introduced
• ALP determined based on normal TP regulations
• APA binding upon Revenue and tax payer
• APA withdrawn upon change in law/
  misrepresentation of facts/ fraud on part of
  taxpayer
• APA valid for 5 consecutive years
• APA ? fill in open ends
• Taxpayers option to renegotiate/ withdraw from
  APA on change in facts/ business model (critical
  assumptions)?
• Provisions of roll back ?
• Bilateral vs. Unilateral APAs ? MAP under tax
  treaties ?

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GAAR and Transfer Pricing

• Thin capitalisation
• Recharacterisation of loan to equity ?
  disallowance of relevant interest, even if rate
  at arms length
• How would non-deductible interest be treated ?
  Dividend, subject to DDT ? secondary adjustment ?
• Business restructuring
• Commercial substance (transfer pricing)
  commercial justification (GAAR) ?
• Exit cost upon conversion (transfer pricing)
  acceptance of low risk model post conversion
  (GAAR) ?

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Thank you
Rahul Mitra Partner (Executive
Director) Mobile [phone] Email
rahul.k.mitra_at_in.pwc.com
PwC