Risk-based Audits for Transfer Pricing: Some Key Concerns

According to the World Economic Forum's Global Agenda Council on Illicit Trade, the shadow economy is worth $650 billion, and has probably risen to $1.77 trillion in 2015 due to illicit practices. [...]transfer pricing has been the major source of disputes in direct taxes making India the third...

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Bibliographic Details
Published in:Economic and political weekly 2019-11
Main Authors: Verma, Swati, Ranganathan, K V K
Format: Article
Language:English
Subjects:
Annual reports
Audits
Developing countries
Economic development
Economic summit conferences
Foreign subsidiaries
Handbooks
India
Industrial development
International finance
International trade
LDCs
Multinational corporations
Real estate development
Related party transactions
Risk assessment
Studies
Tax audits
Tax policy
Taxes
Transfer pricing
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Summary:According to the World Economic Forum's Global Agenda Council on Illicit Trade, the shadow economy is worth $650 billion, and has probably risen to $1.77 trillion in 2015 due to illicit practices. [...]transfer pricing has been the major source of disputes in direct taxes making India the third highest country with the maximum number of transfer pricing disputes. Whilst these above alternative mechanisms have been ambitiously introduced to deal with the unplanned series of disputes and litigations, their efficacy in comprehensively addressing the fundamental issue of tax evasion seems limited. Since the majority of transfer pricing cases still go through the regular cycle of audits by the revenue department, the new CBDT norms have been brought in to check the possibility of incidence of disputes or litigations at the audit stage. The limitation of database and information on related party transactions and company financials in the tax return documentation filed by companies as well as in commercial databases commonly used for ALP comparability analysis in transfer pricing audits may largely inhibit the risk assessment procedure based on informed conclusions as well as the conduct of accurate audits subsequently.
ISSN:0012-9976