Transfer pricing is an effective tool to allocate profits across the value chain globally so that every tax jurisdiction in the value chain is remunerated with an equitable and fair distribution of taxes. This article is not for the corporations that believe in transfer mispricing and adopts tax avoidance strategies. The beneficiaries of this piece of knowledge and experience should be the corporations that believe in fair practices but get caught in the tax litigations due to reasons other than transfer mispricing.
A transfer pricing litigation is a conflict, where the tax authorities of a country are of the opinion that the activities undertaken by the taxpayer are not remunerated as per the value created by the taxpayer in the country of business.
A dispute in daily life often arises because of a single big reason ie. ‘Lack of TRUST’. Expectation mismatches, misunderstandings, confusions, uncertainty, unclarity etc are all outcomes of Lack of TRUST. We are not covering areas where Lack of TRUST occurs due to cheating, frauds, swindling and evasion policies, as it is made clear at the outset that the right intention of the taxpayer is of utmost importance while following this secret. As you would have guessed by now, the top-secret to avoid transfer pricing litigation is building TRUST with the tax authority.
Taxpayers are the partners in nation-building and an essential element of the partnership is TRUST. A taxpayer’s honesty should be reflected in the deeds that are undertaken (in substance) and also in the documentation maintained (in the legal form). Once you have the TRUST factor with you, your chances of a transfer pricing adjustment go down drastically and therefore avoids litigation every single time. Let us understand the factors that could help you build the TRUST factor with the tax authorities.
All the above points would lead to an increased level of TRUST and further build a strong foundation between the taxpayer and the tax authorities. I have personally used all of the above techniques and worked on results in favour without undue tax adjustments. As I said before the idea is to increase TRUST and reduce the possibility of conflict in the mind of the auditor.
In case you would like to know more about representing your case with the transfer pricing authorities or would like to discuss on your transfer pricing strategy to avoid litigation, feel free to write to me at akshaykenkre@transprice.in. You can also visit the firm’s website at transprice.in and follow the content at the official blog at https://transprice.in/tp-blogs/
Looking forward to your feedback.
Regards
CA. Akshay Kenkre
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