To bring about certainty and uniformity with regard to the determination of arm’s length price of the international transaction, the Finance Act, 2012 has inserted section 92CC and 92CD in the Income-tax Act, 1961 introducing the provisions of Advance Pricing Agreement (‘APA’).
An APA is an agreement between the Central Board of Direct Taxes (‘CBDT’) and any person, which determines, in advance, the arm’s length price or specifies the manner of the determination of arm’s length price (or both) in relation to an international transaction. Hence, once APA has been entered into with respect to an international transaction, the arm’s length price with respect to that international transaction, for the period specified in the Advance Pricing Agreement, will be determined only in accordance with the APA. The Advance Pricing Agreement once entered into shall be binding on the person as well as the Commissioner of Income-tax (and his subordinate income tax authorities) having jurisdiction of such person and such transaction. The term of APA can be maximum of 5 years.
The Advance Pricing Agreement Scheme envisages following types of APAs:
- Unilateral Advance Pricing Agreement (APA) is an agreement between the CBDT and the person and does not involve any agreement with the treaty partner;
- In Bilateral APA, the person is required to make an application with the competent authority of India and simultaneously the person or its associated enterprises should apply to the competent authority of other country. The two competent authorities are required to reach an arrangement through mutual agreement procedure negotiation. This arrangement is required to be accepted by the person before a bilateral APA can be entered into;
- In Multilateral Advance Pricing Agreement, the person is required to make an application with the competent authority of India and simultaneously the person or its AE should apply to the competent authority of the other countries which are relevant for such an agreement. Indian competent authority has to reach an arrangement through MAP with competent authorities of more than one country, before that agreement could be offered to the person. This arrangement is required to be accepted by the person before a multilateral APA can be entered into.
Our team of professionals understand the complexity of the transfer pricing regulations in Indi, and provide end to end solutions to our clients which include both Indian and Foreign enterprises.
How can ASC help you in this regard?
- Assistance in evaluating & formation of strategy for the Advance Pricing Agreement;
- Assistance in preparation and filing of application for Advance Pricing Agreements with Tax Authority;
- Assistance in representation before the tax authorities for negotiations and other matter related to Advance Pricing Agreements;
- Assistance in compliances after getting the agreement signed with the CBDT