The Central Board of Direct Taxes (CBDT) has entered into two Unilateral Advance Pricing Agreements (APAs) with Indian taxpayers, strengthening the Government’s commitment to foster a non-adversarial tax regime. Both the agreements also have a “Rollback” provision in them.
Advance Pricing Agreements | Highlights
- The 2 APAs signed yesterday pertain to Information Technology and Banking & Finance sectors of the economy. The international transactions covered in these agreements include Software Development services, IT enabled services and KPO services.
- With these, the total number of APAs entered into by the CBDT has reached 154, which includes 11 bilateral APAs and 143 unilateral APAs. The CBDT expects more APAs to be concluded and signed in the near future. The approach and functioning of the officers in the APA teams have been appreciated and acknowledged by the industry in India and abroad.
Advance Pricing Agreements | Background
- The APA Scheme was introduced in the Income-tax Act in 2012 and the “Rollback” provisions were introduced in 2014.
- The scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and setting the prices of international transactions in advance.
- Since its inception, the APA scheme has evinced a lot of interest from taxpayers and that has resulted in more than 700 applications (both unilateral and bilateral) being filed so far in about five years.
What is Advance Price Agreement?
- An APA (Advance Price Agreement) which is entered into between a taxpayer (eg: an Indian company which has cross-border transactions with related parties such as a foreign parent company) and the CBDT provides transfer pricing certainty for a nine year period (with rollback).
- A rollback enables taxpayers to retrospectively apply the APA agreed upon for a period of past four years. In India, the rollback provisions came into effect recently, in October 2014. In case of bilateral APAs, the foreign related party and the tax authorities of the foreign country are also involved.
Advance Pricing Agreements | Significance
The progress of the APA Scheme strengthens the Government’s resolve of fostering a non-adversarial tax regime. The Indian APA programme has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.