New Delhi: Concerned over rising transfer pricing disputes, the finance ministry is contemplating to introduce Advance Pricing Agreement (APA) mechanism to deal with such issues in the forthcoming budget.

"APA might come in finance bill in the budget for 2012-13, since Direct Taxes Code (DTC) is unlikely to be implemented this year," a senior Finance Ministry official said.

 The APA mechanism will allow companies to enter into agreements with the tax authorities to prevent future disputes with regard to pricing of products and services for the purpose of cross-broder trade between related entities. It is treated as an effective tool to achieve certainty on transfer pricing matters.

Multinational companies use transfer pricing as a tax saving tool to shift profits to countries with low tax rates. However, in the process country lose tax revenue.

Finance Minister Pranab Mukherjee will unveil the budget for 2012-13 in the Lok Sabha on March 16.

Although the DTC has made a provision for introduction of the APA mechanism, the new direct tax law is unlikely to come into force from April 1, 2012.

The DTC, which seeks to replace the Income Tax Act, 1961 is currently being scrutinised by the Parliamentary Standing Committee.

Speaking at a CII function, S K Mishra, Joint Secretary, International Taxation has said, “Government is very much concerned with rising disputes and we are making all efforts to reduce by having clearer provisions and certainty in tax provisions."

Pointing out that there are no thumb rules to deal with transfer pricing disputes, he said, "we have solved more than 100 cases through mutual agreement procedure (MAP) in last one year."