Resolving Transfer Pricing Disputes: DRP, Appeals and the Mutual Agreement Procedure

When the tax department adjusts a company's transfer pricing, there are several ways to contest it, each with different timelines and outcomes. And because an adjustment in India can cause double taxation, a treaty route is also available. This guide explains the options.

How Adjustments Arise

Transfer pricing is examined by specialist officers, who may propose an adjustment where they consider pricing isn't at arm's length. The adjustment is included in a draft assessment order for eligible taxpayers, or a final order.

Route 1: Dispute Resolution Panel (DRP)

Eligible taxpayers — including those with transfer pricing adjustments — can file objections to a draft order before the Dispute Resolution Panel, a panel of senior officers. The DRP issues directions, and the final order follows them. It's generally faster than the first appeal route, and the demand is typically not raised until the final order.

Route 2: First Appeal

Alternatively, the taxpayer can let the assessment be completed and file an appeal against the final order with the Commissioner (Appeals).

The Tribunal and Beyond

Either route can be followed by an appeal to the Income Tax Appellate Tribunal, which decides facts and law, and then to the High Court on substantial questions of law.

The Mutual Agreement Procedure (MAP)

A transfer pricing adjustment in India means the same profit may already have been taxed in the other country. Under the treaty, the taxpayer can request MAP, in which the competent authorities of both countries negotiate to eliminate the double taxation. MAP can run alongside or instead of domestic appeals, subject to rules on how the two interact.

Choosing a Route

• Domestic litigation resolves the Indian position but not double taxation.
• MAP addresses double taxation, with both countries involved.
• An APA with rollback can resolve both past and future years together.

Practical Tips

1. Build a strong factual record at the assessment stage.
2. Diary deadlines for DRP objections and appeals immediately.
3. Consider MAP early if double taxation is significant.
4. Explore an APA to prevent recurrence.

Getting Help

Think Filing represents companies in transfer pricing disputes and advises on MAP and APA options.