Recently, the Central Board of Direct Taxes (CBDT) has 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.
In general, the Indian tax authorities and customs authorities have different purposes to assess an import transaction. The customs authorities have a motive to raise the price so that they can levy higher import duties on the purchase price. On the other hand, the tax authorities have a motive to lower the purchase price so that they can reduce the taxpayer’s expenses and raise the 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.
