BRICS Should Work Together On Transfer Pricing As Disputes Burden Developing Nations: FM

Finance Minister Nirmala Sitharaman on Wednesday urged BRICS nations to share their experiences on treaty interpretation and multilateral negotiations in international taxation, saying global transfer pricing disputes "disproportionately" burden developing countries.

India has proposed to set up two new working groups, International Taxation and Transfer Pricing and Revenue Statistics, at a time when international tax rules are being renegotiated, Sitharaman said, addressing the BRICS heads of tax authorities meeting here.

"The rules of international taxation are being renegotiated. There are several multilateral tax issues, including the UN Framework Convention on International Tax Cooperation, under active negotiation. The decisions made in these processes over the next few years will shape cross-border taxation for a generation.

"BRICS economies, as source jurisdictions, as large developing economies, as countries that have built significant domestic tax capacity from a low base, have a perspective on those negotiations that is essential to their fairness and their durability," Sitharaman said.

Transfer pricing refers to the pricing of goods and services that are exchanged between related companies. International transfer pricing disputes arise mainly because countries seek to ensure that MNCs are subject to tax on an appropriate share of the profits attributable to their respective jurisdictions.

Accordingly, differences in the allocation of taxable income among countries can give rise to disputes between taxpayers and tax authorities, as well as between tax authorities in different jurisdictions.

"Transfer pricing disputes cost developing-country administrations disproportionately. Revenue frameworks that don't fit our fiscal realities distort how we are seen and how we see ourselves," Sitharaman said, adding that the BRICS working groups will work based on common experience from all the member countries.

She said the proposed working group will have "larger significance" in the context of ongoing renegotiations in the rules of international taxation and fairness in taxation of BRICS economies, which are mainly the source jurisdictions in transfer pricing.

Sitharaman also said the world's tax administrations are navigating the same transformation -- from paper-based, relationship-dependent processes to data-driven, digitally-mediated systems.

Revenue Secretary Arvind Shrivastava said BRICS tax experts have spent two days reviewing the scope of work of the working group.

The International Taxation and Transfer Pricing Working Group creates a permanent BRICS platform for sharing experience on treaty interpretation, transfer pricing audit, APA (advance pricing agreement) and MAP (Mutual Agreement Procedure) mechanisms, and the multilateral negotiations including the UNFCITC (United Nations Framework Convention on International Tax Cooperation) -- where our collective voice is needed and currently insufficient, he said.

The Revenue Statistics Working Group creates a framework for measuring fiscal performance that reflects BRICS realities rather than importing assumptions from frameworks built for very different economies, Shrivastava said.