MUMBAI: India’s Central Board of Direct Taxes (CBDT) has recently entered into an advance pricing agreement (APA) where the price determined by the Indian Customs authorities was accepted as arm’s length price for import transactions for transfer pricing purposes.
Generally, the Indian tax authorities and customs authorities have different purposes for valuing an import transaction. The customs authorities have a motive to increase the price so that they can charge higher import duty on the purchase price. The tax authorities, on the other hand, have a motive to slash the purchase price so that they can lower the expenditure of the taxpayer and charge tax accordingly.
The use of customs data to establish arm’s length pricing for transfer pricing purposes has been the subject matter of litigation in India.
Customs data is prepared and maintained by the Indian customs authorities in relation to any items, goods, products. etc. imported into India. For transfer pricing purposes, Indian taxpayers who have undertaken import transactions have been benchmarking the said transactions using customs data to arrive at the arm’s length price.
