India, U.S. Resolve 108 Cross-Border Tax Disputes

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing. 

By Kevin A. Bell

Nov. 17 — Indian and U.S. officials resolved more than 100 cross-border tax cases at their meeting the week of Oct. 24, bringing the total number of cases resolved since early 2015 to more than 220, a top IRS official said.

Douglas W. O'Donnell, commissioner of the Internal Revenue Service Large Business and International Division, said in a Nov. 17 e-mail to Bloomberg BNA that “over 120” of the cases were resolved through a framework agreed to in January 2015 for transfer pricing disputes involving information technology-enabled services (ITeS) and software development.

The more recent cases—pegged at 108 in an announcement from the Indian Ministry of Finance—were mainly “outside of the framework” for the ITeS and software cases, O’Donnell said.

The Indian announcement said the 108 cases resolved in October involved 50 billion rupees ($735 million) in disputed tax. Sixty-six were transfer pricing cases and 42 involved treaty interpretation, and the assessment years covered were 1999-2000 to 2011-12. Indian tax years end in March.

In addition to the overlapping tax claims, the U.S. and India resolved their first advance pricing agreement “within only 8 months after having begun accepting Bilateral APA applications,” O’Donnell said.

“These successes speak to the quality of collaboration on these difficult matters between the United States and India Competent Authority teams,” he added.

Pending APAs

O’Donnell said the U.S. and India currently have almost 30 APA applications and “anticipate more applications for bilateral APAs will be filed before March 2017, especially given the confidence taxpayers can have that the two competent authorities can resolve these cases expeditiously.”

The IRS official acknowledged that timing “is an important consideration for taxpayers currently within India’s Unilateral APA program looking to decide whether to convert their applications to obtain the tax certainty of a Bilateral APA.”

India’s Ministry of Finance said resolving the 100 cases and reaching agreement on the APA is “a positive factor in creating a conducive atmosphere for investments and business by U.S. Companies in India.”

O’Donnell said IRS officials “look to maintain that momentum with India’s new competent authority, Ms. Pragya Saksena, in both double tax cases and Advance Pricing Agreements.”

Types of Adjustments

According to India’s Ministry of Finance, the 66 settled transfer pricing cases resolve disputed Indian adjustments for:

  •  related-party royalty payments,
  •  management fees,
  •  cost-contribution arrangements,
  •  engineering design services,
  •  contract research and development services,
  •  investment advisory services,
  •  marketing support services,
  •  software development devices, and
  •  ITeS.

Treaty Issues

The 42 treaty cases involve interpretative issues regarding whether a U.S. multinational has a permanent establishment in India and profit attribution to those PEs, the ministry said.

Other disputes involved whether the income at issue in the case was royalty income or business income of the foreign companies.

E. Miller Williams, a principal at Ernst & Young LLP in Washington, said his firm represented the taxpayer receiving the first U.S.-India APA. The APA was initially filed as a unilateral application in India and converted to a bilateral application early this year, he said.

Williams said he expects the final written agreement between the IRS and the taxpayer to be completed in December.

To contact the reporter on this story: Kevin A. Bell in Washington at kbell@bna.com

To contact the editor responsible for this story: Molly Moses at mmoses@bna.com

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