The Central Board of Direct Taxes (CBDT) has entered into 10 more Advance Pricing Agreements (APAs) over the last one week, including 7 Unilateral APAs signed today. Two of these ten agreements are Bilateral APAs with the United Kingdom and Japan. Seven of these Agreements have Rollback provisions in them.
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.
Pricing Agreements | All you need to know
- An APA (Advance Price Aggrement) 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.
Pricing Agreements | Highlights of the new APAs
- With this, the total number of APAs entered into by the CBDT has reached 140.
- The APAs entered into over the last week pertain to various sectors of the economy like Telecom, Pharmaceutical, Banking & Finance, Steel, Retail, Information Technology, etc.
- The international transactions covered in these agreements include Payment of Royalty Fee, Trading in Goods, IT Enabled Services, Software Development Services, Marketing Support Services, Clinical Research Services, Non-binding Investment Advisory Services, Payment of Interest on ECB, etc.
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.