NO TRANSFER PRICING NORMS IF NO TAX LIABILITY

If a foreign company does not have a liability to pay tax, the income-tax department cannot apply transfer pricing provisions on it. Giving relief to the Netherlands-based Vanenburg Group BV, Authority for Advance Ruling (AAR) has ruled that transfer pricing provisions will not apply in its case as it was not liable to pay tax in India. Venenburg Group, which had transferred the entire shareholding of its Indian subsidiary Cordys R&D (India) Pvt Ltd. to its Cordys Holdings BV (Netherlands), had sought a ruling from the AAR on whether the transfer would attract capital gains tax and the transfer pricing provisions under Sections 92-92F of the Income-Tax Act, 1961. The AAR, in its ruling,said capital gains arising out of Cordys (Netherlands) would not attract tax under Article 13(5) of the India-Netherlands Double Taxation Avoidance Agreement. AAR held that the provisions under section 92-92F of the Income-Tax Act, 1961, are machinery provisions and will not apply where there was absence of liability to pay tax.