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Advance Pricing Agreement

Advance Pricing Agreement

As the Transfer Pricing assessments in the Indian economy progressed, the litigations also rose to higher levels under Transfer Pricing arena and thus the uncertainty always existed in the minds of Multinational Companies for income tax liabilities to be paid in India.

To reduce the uncertainty for the arm’s length pricing of international transactions for Multinational Companies, Advance Pricing Agreements (APA’s) were introduced in India to offer an option to corporates to enter into an agreement with Indian Government for a specified period in which there would be clarity in the mind of Indian Government and the corporates the amount of taxes that needs to be paid for that specified period. In this manner, corporates were relieved from the risk of any Transfer Pricing adjustments at the assessment stage by the Transfer Pricing officers.

Purpose of Advance Pricing Agreement: -

  • To eliminate/ minimize litigation in International Transaction
  • To Provide Tax certainty to the foreign investor
  • To make the Indian Transfer Pricing laws as per global benchmark

Benefits for Advance Pricing Agreement:

  • Determination of ALP in advance
  • Elimination of unnecessary Litigations relating to ALP
  • Tax Certainty on International Transactions
  • Reduce Compliance Cost

Key Features of Advance Pricing Agreements: 

  • Binding on Tax Authority & Tax Payer (Applicant)
  • Valid for a period of 5 prospective years and with availability of roll back option
  • Avoidance of double taxation

Types of Advance Pricing Agreement (APA’s):

  1. Unilateral APA’s: It is a kind of advance pricing agreement entered by the assessee with the authority of the country of its residence.
  2. Bilateral APA’s: Bilateral Advance Pricing agreement involves the following parties :
  • The Tax Payer & Tax authority having jurisdiction over the taxpayer
  • The Associated Enterprises (AE) & Tax Authority having jurisdiction over the AE.
  • Multilateral APA’s: Multilateral Advance Pricing Agreement involves the following parties :
  • Tax Payer & Tax authority having jurisdiction over the taxpayer
  • Two or more Tax Authorities and taxpayers of the countries in which AE’s are located

How ASC can help you?

  • 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.

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