Benjamin Franklin in 1789 had famously said that nothing in this world is certain except death and taxes. Unfortunately, after 250 years, while death is still a certainty, the same cannot be said for taxes. In his 2024 paper, “What creates tax uncertainty-evidence from 3 phases of cross country survey”, Professor Michael P. Devereux of Oxford University Centre for Business Taxation found huge variation across countries in the degree of tax uncertainty.

As per the survey, 96 per cent of respondents believed tax to be very or uncertain in India. India ranks low on tax certainty due to absence of effective mechanisms to equip taxpayers to obtain certainty upfront i.e. before commencement of transaction or at least before the tax return is filed, in order to commit oneself to a position. The next main factor is the inordinately long time taken for tax litigation to come to an end, once it starts.

The former refers to situations where a taxpayer is willing to pay his due taxes as per law but is neither sure itself nor able to get upfront clarity through an institutional mechanism. Positions based on professional advice may not be accepted by the tax department, entailing prolonged litigation along with interest, penalty and of course additional tax. In a world of complex business transactions, especially cross-border ones, a different view by the tax authority is quite likely on issues such as existence of a permanent establishment, characterisation of nature of receipts, availability of exemptions, deductions etc. and more.

The Advance Pricing Agreement (APA) scheme launched in 2013 caters well to this requirement for transfer pricing issues. Revamp of the Safe harbour Scheme is also a welcome step in this direction. But a robust mechanism for issues beyond transfer pricing is required. Authority for Advance Rulings (AAR) mainly constituted for cross-border transactions was closed a few years back due to........

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