Introduction of scheme for determination of ALP of international transactions for a block of 3 years

Amendment to Section 92CA of the IT Act -

Section 92CA provides the procedure governing reference of an international transaction or a specified domestic transaction (‘SDT’) to the Transfer Pricing Officer (‘TPO’), for computation of their arm’s length price (‘ALP’).

It has been noted that in reference under section 92CA of the IT Act for computation of ALP, in many cases, there are similar international transactions or SDTs for various years, same facts like enterprises with whom such transaction is done, proportionate quantum of transaction, location of AEs, etc., and same arm’s length analysis are repeated every year, creating compliance burden on the assessee as well as administrative burden on the TPOs. In such situations, it is proposed to carry out TP assessments in a block.

It is, therefore, proposed to provide that the ALP determined in relation to an international transaction or a SDT for any previous year shall apply to the similar transaction for 2 consecutive previous years immediately following such previous year.

The assessee shall be required to exercise an option or options for the above effect in the form, manner and within such time period as may be prescribed in section 92CA(3B) of the IT Act.

The TPO may by an order within 1 month from the end of the month in which such option is exercised, declare that the option to be valid subject to the prescribed conditions in section 92CA(3B) of the IT Act.

Amendment to Section 155 of the IT Act relating to recomputation of income 

A new sub-section (21) shall be inserted in section 155, so that where the ALP determined for an international transaction or a SDT for any previous year and the TPO has declared an option exercised by the assessee as valid option in respect of such transaction for 2 consecutive years immediately following such year, then:

The AO shall recompute the total income of the assessee for such consecutive previous years, by amending the order of assessment or any intimation or deemed intimation under section 143(1) of the Act in conformity with the ALP so determined by the TPO under section 92CA(4A) of the IT Act in respect of such transaction and taking into account the directions issued under section 144C(5) of the IT Act, if any, for such year.

Such recomputation shall be done within 3 months from end of the month in which the assessment is completed in the case of the assessee for such year.

Removing date restrictions on framing the schemes in certain cases

The enabling provision for notifying faceless schemes under sections 92CA, 144C, 253 of the IT Act was extended vide Finance Act 2024 to 31 March 2025. In this regard, it is proposed that end date prescribed for notifying faceless schemes under sections 92CA, 144C, 253 and 255 of the IT Act may be omitted so as to provide that Central Government may issue directions beyond the cut-off date of 31 March 2025, if required.

These amendments will take effect from 1 April 2025

 

Scope of Safe Harbour Rules to be expanded

Safe Harbour Rules (‘SHR’) were introduced in 2013 to reduce the increasing number of transfer pricing audits and prolonged litigation as a dispute resolution mechanism. It was initially applicable to certain businesses and international transactions only. Subsequently, these rules were also extended to certain specified domestic transactions, again with the same purpose of reducing the prolonged litigation.

At present the SHR covers international transactions pertaining to provision of IT / ITeS / KPO services, intra-group loans to wholly owned subsidiaries, corporate guarantee, contract R&D services pertaining to software development, contract R&D relating to generic pharmaceutical drugs, manufacture and export of auto components, and availing of low-value intra-group services.

The SDTs covered under SHR are supply, transmission, wheeling or distribution of electricity, purchase of milk or milk products, and diamond mining business.

With a view to reduce litigation and provide certainty in international taxation, the scope of SHR is proposed to be expanded, the details of which are yet to be announced.

 

 

 

 

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