India works on smoothing over Japan Tax issues

India's road from Look East to Act East has led to resolving as many as 15 bilateral tax disputes with Japan.Tax officials from both countries will meet in Tokyo in June to sign agreements aimed solving the transfer pricing disputes relating to Japanese involvement in Indian automobile and auto ancillary sectors and large trading houses.The move is expected to go a long way in India's Make In India mission of attracting more and more Japanese firms to its shores.The disputes range from determining royalty, tax dues, profitability of trading houses and the commission paid. It is expected the governments of these two nations will apply a mutual agreement procedure (MAP) to ensure relief of about Rs 10,000 crores to Japanese industries.MAPs prevent tax disputes that aren't covered in tax treaties through action by one or both contracting states in specific cases. The major concern for multinational companies and the nations they are headquartered in is the Jmark-up and tax dues on costs for services provided.Re-aligning relations with Japan is an important aspect of the Narendra Modi led government's proactive engagement plans for the region.Shinzo Abe's government is formulating plans to fulfil its promise to build India's infrastructure and promote domestic manufacturing as it doubles its investment in the country to about $35 billion in the next five years.Japan has identified 11 sites to set up industrial townships in India, which would serve as hubs for investments into the country. These include Tumkur in Karnataka, Ghilot in Rajasthan, Mandal in Gujarat and Supa in Maharashtra. Japan will also provide soft skills training to Indian workers in the manufacturing sector to help bridge the demand-supply gap.Act East is drawing India closer to not only Japan and Australia in the Pacific but also to smaller Southeast Asian nations such as Vietnam as well as countries like Singapore.

The above article was published in India Inc's print edition of the India Investment Journal launched in June 2015 in conjunction with the Policy India Roundtable 2015.