Indian Economy News

Toyota, Mitsui, Marubeni to sign first set of pacts

New Delhi: Mitsui, Toyota and Marubeni are likely to be among Japanese companies that would sign the first set of bilateral advance-pricing agreements (APA) with India shortly. These agreements will provide certainty to Japanese multinational firms operating in India and avoid conflicts over sharing of taxes between India and that country.

Two sources in the know told Business Standard that these companies were in advanced stages of negotiating bilateral APAs. Some companies from other countries have also applied for bilateral agreements but Japanese firms are likely to be the first to sign those.

"Most Japanese companies are interested in bilateral APAs. We plan to sign the first bilateral APA with them this year. Broad principles have been agreed upon," said a finance ministry official who did not wish to be named as the talks were confidential.

Tokyo-headquartered Toyota, with premium vehicles like Land Cruiser, Prado, Pirus, Camry and Fortuner in its stable, is a well-known automotive manufacturer in India. Mitsui is one of Japan's largest general trading companies operating in diverse businesses like infrastructure and energy. Marubeni India, a subsidiary of Marubeni Japan, deals in food, chemicals, lifestyle, pulp & paper and metals & mining.

"There is an in-principle agreement on some APAs. We should be able to close those by the end of the year," said EY Partner Vijay Iyer.

Amid some multinational companies complaining of a hostile tax environment, bilateral APAs would provide assurance to these firms that the tax department would be rational in its approach.

A favourable tax environment is also in line with Prime Minister Narendra Modi's promise of providing ease of doing business and aid manufacturing as part of his 'Make in India' campaign.

The talks between India and Japanese authorities on APAs were fast-tracked after the prime minister's Japan visit, during which that country announced an investment of $35 billion in India over five years.

APAs are necessary as tax officers often dispute payments by companies to their foreign parent groups, particularly in low-tax jurisdictions, with regard to interest, service charges, royalties, management and technical fees.

For instance, the tax department had claimed that Shell India, which had issued 87 million shares to parent Shell Gas BV at a face value of Rs 10 apiece in 2008-09, should have valued its shares at Rs 183 apiece. A lower income in India brings down their tax liability.

Under APAs, a deal will be signed in advance to determine the methodology for calculating an arm's-length price for the following five years. The margins declared according to an agreed approach will not be disputed by tax officers.

India's double-taxation avoidance agreements with Germany, France, Singapore, Italy and South Korea will not provide for a bilateral APA. Some companies from these countries, such as Samsung, LG, and Siemens, are learnt to be interested in bilateral APAs but are not eligible at present. So, most of the applications so far have come from Japan and the UK.

India will renegotiate its tax treaties with Germany, France, Singapore, Italy and South Korea to pave the way for bilateral APAs with those countries. If renegotiation takes long, it might also consider unilaterally changing its position in the treaties to allow multinationals to sign APAs in India.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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