Tax dispute resolution in the Indian context hasn’t particularly been an encouraging experience. While a portion of this taint could be attributed to complexity of tax laws and efficiency levels of the administrative process, a material reason is delay in seeking resolution due to multiple layers of appeals, which currently is four.
As a new entrant in the tax profession, one would experience that the broad outcome of first appeals with the income-tax commissioner resulted in 80% of the IT officers’ order of assessment being reversed. Disappointedly, not even 20% of orders are overturned today. The reasons for such outcome is partly understandable and partly creation of our actions.
The authority of IT commissioners has been subsumed with the powers of the officers, thereby making the functioning of the commissioners akin to glorified officers. Either the IT commissioners are reluctant to take bold decisions or relegate the adjudicating function to the tax tribunal, despite being convinced on merits of the case in several instances.
What has lately complicated the outlook is multiplicity of high tax demand cases of large taxpayers and MNCs. Besides, in a high-stakes battle, neither the taxpayer nor the tax administrations are in a frame of mind to give up litigation. The institution of a dispute resolution panel (DRP), announced in Budget 2009, is a bold move and couldn’t have been timed better. It would undoubtedly facilitate creating a platform to avoid endlessly litigation and save precious time of our courts. As our law does not permit an out-of-court settlement, DRP makes it an even more compelling case for seeking dispute resolution.
Coverage & Scope
Firstly, DRP is optional and if an eligible taxpayer exercises the option, the DRP shall review cases involving transfer pricing (TP) and other disputes. However, the absence of TP dispute shall disentitle an Indian company to seek DRP intervention though foreign companies can subject all disputes to DRP.
Lately, the CBDT announced detailed rules articulating requirements to disclose facts, submission of additional evidence (a common cause of dispute), examination of witness, etc. More importantly, the DRP has to give its decision with a nine-month timeframe against which the tax administration cannot appeal.
Problems & Challenges: Some Suggestions
Metaphorically, the new-born baby of the revenue department would have its share of challenges on its way to organic evolution. The key challenges for DRP becoming an effective and efficient forum can be summed up as follows:
Independence: The fact that the collegium shall comprise three IT commissioners questions the independence of the panel as a member of DRP could be supervising, if not directly dealing with, the dispute. It is well accepted that large taxpayer assessments have inputs from the jurisdictional IT commissioner, and if the same commissioner is a member of the panel, how can his view be objective, particularly if he is also responsible for meeting the collection target? The cardinal judicial discipline that a judge cannot decide his own case should be adhered to; it would otherwise fail.
Consistency: The DRP shall have to achieve absolute consistency on principles of law coupled with seamless coordination across metros. It should endeavor to achieve its objectives set in a similar fashion as that of the National Tax Tribunal, which is proposed to replace the state high court.
Judicial Representation: The collegium besides IT commissioners should have envisaged a judicial or law officer; absence of judicial competencies could act as a handicap in dwelling deeper into principles of law.
Spirit and Coverage: It is imperative that the collegium operates in the spirit of an arbitration panel. An arbitrator’s job is not just to avoid court intervention but function with an objective to resolve (and not perpetuate) the dispute. Function to act as a mediator, of course within the boundaries of legislative framework, is critical if its scope is broadened to cover the role of the Settlement Commission. This would imply that the DRP can make recommendations to drop penalty proceedings even if it agrees with views of the administration.
In Conclusion, DRP as an alternate settlement mechanism has been welcomed by MNCs who either are reeling under our cumbersome, time-consuming and expensive tax litigation process or have heard about India’s reputation as a notorious tax jurisdiction.
DRP as a legislated forum prima facie appears to be more stable unlike patchy attempts made in the past (Voluntary Disclosure of Income Scheme of 1997 and Kar Vivadh Samadhan scheme of 1998). One clear advantage I see is curtailment of tax administration’s right to collect tax on high-pitched assessment, a practice widely prevalent.
And finally, tax payers would skip a layer of appeal that, in my view, had become redundant over the years. Let’s wait and see how we succeed in curtailing tax litigation.
ELP’s market leading Tax practice with its “out of the box” solution providing ability has created a niche for itself. The Tax practice offers comprehensive qualitative services across both indirect and direct taxes (including transfer pricing) covering the entire spectrum of transactional, advisory and litigation work. Our distinctive tax practice seamlessly integrates expertise in both advisory services and litigation, enabling the firm to address and offer redressal in any and all disputes that may arise. ELP has the distinction of having assisted some of the largest global conglomerates on a wide spectrum of matters that encompass not only legal advisory but also in-depth strategic decisions which have had a far reaching impact on domestic as well as cross-border businesses and transactions of these organisations. Our tax team comprising of professionals with diverse expertise, which include not only legal professionals (advocates and solicitors) but also financial and market analysts, chartered accountants and economists who hold multi-jurisdictional qualifications, has achieved this kind of reach and impact with a rather innovative and customised approach.
Additionally, ELP’s team routinely renders litigation services to clients. ELP strategises, assists and represents clients in both adjudication as well as appellate proceedings. We regularly handle cases from the stage of appearing before Assistant or Deputy Commissioners right up-to the Supreme Court on almost every tax issue to have arisen in the country. Our team has the expertise and ability to represent clients at various fora, including the Dispute Resolution Panel, Authority for Advance Rulings and the Supreme Court of India. The combination of advisory and litigation services provided under one roof gives ELP a unique positioning especially in India, where the proportion to tax litigation is significantly higher compared to the other nations.
ELP’s indirect tax expertise has transitioned itself from the entire gamut of taxes including Excise, Customs, Service Tax, Sales Tax/Value Added Tax (VAT), Entertainment Tax, Entry Tax to recently introduced Goods and Services Tax (GST). On GST, ELP has to its credit not just the privilege of having assisted companies with transitioning into GST, but in certain cases hand held the entire industry in the transition process. ELP also advises clients on Foreign Exchange Regulations, Foreign Trade Policy and Export Control and Trade Sanctions. Our wealth of experience includes advising clients across sectors and countries. We have also successfully represented various industry associations before the Ministry of Finance and its functionaries on various issues impeding business operations. We have also been privileged to advise the Government of India on policy initiatives.
ELP’s direct tax expertise covers all aspects of international and domestic tax matters including transfer pricing. Our team outlines commercially viable structures and suggests arrangements to clients so as to achieve business objectives in a tax and regulatory efficient manner. We provide cutting edge and novel solutions to issues that emanate at the structuring stage of transactions with the view to providing forward looking tax strategies to our clients.
ELP’s transfer pricing services offer solutions across industries and geographies with the focus on not only a comprehensive analysis but also on assisting clients in planning their transfer price. We are uniquely positioned amongst firms in India due to our added ability to advice on trade and customs including valuation to be adapted under customs. Our team has been trained internationally and is able to provide a broader perspective on matters and transactions to mitigate risks in the future.
With years of unparalleled expertise in the field of Indirect Tax Advisory and Litigation, ELP brings to the table a dedicated and experienced team of professionals comprising of advocates, chartered accountants and economists to provide high quality support, advice and assistance towards a smooth transition into the new GST regime. Our in-depth understanding of this field has led us to collaborate with various large multi-national and Indian clients across diverse sectors, industry associations and trade bodies. Our presence in multiple locations in India and proficiency in the management of multi-jurisdictional tax advisory and litigation matters enables us to provide Pan-India support to clients on GST.
ELP’s integrated and seamless approach, wealth of experience, high-level partner involvement, in-depth knowledge and expertise and comprehensive service offerings pan India have made us one of the most sought after firms for tax within India.
Tax structuring & optimisation including advice and assistance in relation to all kinds of issues, having implications under GST as also in relation to:
State Excise, and State incentive policy
Foreign Trade Policy, etc.
Export Control and Trade Sanctions
Advisory, transaction structuring & support services including analysis of sourcing, procurement and distribution models and advice on best practices to be incorporated in the supply chain from a GST efficiency perspective
Due diligence & optimisation study for building tax efficiencies and determining potential tax saving opportunities
Assistance for negotiating optimum package of incentives under the State Industrial Policy
Comprehensive support for resolving tax issues related to cross border transactions
Advice and assistance on policy initiatives & representations before Central and State Government authorities
Litigation services – right from assessment level to the highest appellate level, and across all fora and courts including Authority for Advance Ruling, Settlement Commission, up-to the Supreme Court
International and Domestic Tax Advisory
Inbound and outbound structuring;
Planning to improve tax efficiency/strategic documentation;
Designing an entry strategy (types of presence);
Exchange policy and foreign investments;
Investment and capital structuring;
Structuring of Revenue and/or capital flows – for example dividend, royalty, fees for technical services;
Formulating strategy for mitigating risk of PE exposure of foreign corporations;
Structuring of infrastructure and Engineering Procurement Construction (EPC) contracts;
Domestic Tax Planning;
Tax compliance & dispute assistance (litigation support);
Levies from POEM and GAAR perspective
Transfer pricing study and documentation;
Inter-company transfer pricing policies for tangible goods, intangibles and services;
Transfer pricing planning Services;
Transfer Pricing Litigation;
Supply chain advisory;
Analysing existing policies to ascertain how these should be streamlined to meet the changing economic environment; and
Evaluating the positions taken in past in light of the evolving tax positions
Financial Planning and/or Transaction Advisory
Structuring for listing outside of India;
Fund structuring and Carry structuring;
Internal restructuring, and
Transaction process support