Pharma companies want tax sops, clarity on transfer pricing

Pharmaceutical companies want the finance minister to increase tax concessions across the board  as also bring in more clarity on amendment to the rollback of advance pricing agreements (APA), applicability of roll back benefit, impact on on-going assessment, applicability of roll back provisions on bilateral APAs etc.

In a pre-budget memorandum submitted to the finance minister, the Organisation of Pharmaceutical Producers of India (OPPI) said it hoped the minister to reduce both direct and indirect taxes and bring about more clarity on transfer pricing.

OPPI has sought the following:

• An increase in the percentage of weighted deduction allowed for companies undertaking scientific research to 200 per cent from the current 125 per cent;
• Weighted deduction of 200 per cent for expenditure incurred outside the R&D units;
• Tax benefits for outsourced R&D and contract manufacturing;
• Weighted deduction for healthcare infrastructure expenditure in rural/ semi-urban areas;
• Tax benefits for setting up state-of-the-art health care facilities in metros, Tier I and Tier II cities;
• Weighted deduction on healthcare expenditure (revenue and capital) to encourage investment; and
• Revisit existing GAAR rules before implementation; onus to prove avoidance of tax should be the tax department.

Indirect taxes

• The current mandatory pre-deposit of 7.5 per cent on first level of litigation and additional 10 per cent at second level on duty (if duty and penalty are both in dispute) or on penalty (if penalty is in dispute) should be made optional;
• Interest payable on delayed payment of service tax should remain 18 percent, irrespective of the period of delay;
• Exempt R&D /clinical trial services performed in India where the recipient of service is situated outside India from service tax; and
• A large taxpayer Unit (LTU) should be allowed to pass on the CENVAT credit to its other registered units.

Transfer Pricing:

• Greater clarity on amendment to the rollback of Advance Pricing Agreements (APA). Detailed guidelines should be issued on applicability of roll back benefit, impact on on-going assessment, applicability of roll back provisions on bilateral APAs etc;
• Since rules for determining the arm's length price still awaited, detailed guidelines for scenarios under which concept of 'range' and 'arithmetic mean' shall apply, should be prescribed;
• The tolerance band should be restored to the earlier limit of 5 per cent;
• Local marketing expenditure on global brands should not be subject to transfer pricing audit;
• A corresponding adjustment should be allowed in case of any transfer pricing adjustment in Specified Domestic Transactions;
• The penalty structure (2 per cent) on Transfer Pricing Adjustments to be toned down, to be levied only in exceptional cases;
• Issuance of a formal guidance for application of the transfer pricing method to differentiate the innovator without comparison with generics, except where such a comparison is based on a scientifically proven method/ guidelines;
• Take into consideration losses incurred in the start-up year/ year of launch of a product or molecule and specific guidelines prescribed to account for the cyclical nature of expenditure
• Guidelines to be provided when transfer pricing regulations force companies to reduce transfer prices of drugs which lowers end selling prices due to the DPCO rules.