Asia-Pacific Transfer Pricing Handbook

Chapter Eleven

Transfer Pricing Litigation in India

Transfer Pricing has been developing rapidly in India. This rapid development includes the implementation of regulations, audit techniques, and case law. The case law itself is worthy of note. India, unlike most of Asia, is litigious. More cases are on the way.

BACKGROUND

India was a highly regulated economy until 1991, when the country began free market reforms. India is a capital importer, and that fact impacts its tax and trade policy. India attracts direct investments primarily due to its lower labor costs. The country is seeking to protect its tax base, and that fact takes precedence in governmental tax planning rather than seeking equity between taxpayers and the government. The Indian government focuses on transfer pricing as a means of protecting its tax base. Recent case law developments focus on this protectionism. To further implement its tax base concerns, India exempts wholly domestic entities and focuses on international businesses.

India has a number of peculiarities in its tax system. Like the United Kingdom, India uses an assessment year that begins on April 1 rather than determining amounts on a calendar-year basis. India does not use a consolidated return system.

India has other peculiarities in the transfer pricing context. India taxes foreign companies at a higher tax rate than it taxes domestic companies, a rate of more than 41+% for foreign companies compared with a rate of 33+% for domestic Indian companies. ...