The Central Board of Direct Taxes (CBDT) has signed 11 more unilateral advance pricing agreements (APAs), taking the overall number to 59. They includes three bilateral APAs — one with Japan and two with the UK (signed in February).
An APA is an agreement between a corporate taxpayer and the tax authority on its transfer pricing methodology and the tax rate applicable on inter-company transactions.
It usually runs for a few years and helps avoid disputes with the tax authorities over transfer pricing.
The latest round of 11 APAs cover a range of transactions, including ITeS, corporate guarantee, software development services, overseas distribution of goods manufactured by Indian companies and royalty payments.
Providing clarity What is noteworthy is that the CBDT has concluded 50 APAs in 2015-16, living up to its promise on this front and also reflecting the tax administration’s keenness to avoid transfer pricing disputes.
The APA scheme, which was introduced in 2012, tries to provide certainty to taxpayers in transfer pricing by specifying the method of pricing and setting the prices of international transactions in advance.
The scheme provides certainty in transfer pricing up to a period of nine years and helps reduce tax disputes.
Amit Agarwal, Partner, Nangia & Co, a CA firm, said that the signing of 11 more APAs shows that the government is not only open but is also actually taking steps to reduce litigation and provide certainty to the taxpayers.
Quick resolution APAs have proved to be a successful route for dispute resolution unlike the ‘Safe Harbour’ initiative, which was introduced with a similar intent, but never practically saw the light of the day, Agarwal added.
Vijay Iyer, Partner and National Leader, Transfer Pricing, EY, said that the last few months have seen frenetic activity on the part of tax authorities towards concluding APAs. Going by this trend, one would not be surprised if the 100 mark is achieved in 2016-17, he noted.
Iyer also suggested that India should look at providing a ‘fast track’ APA mechanism for providing clarity to people who want to invest in the country.
The fast track mechanism should strive to provide results in a span of 3-6 months against the current average time span of 18 months, which is no doubt commendable and in line with global practices, Iyer added.
Amit Maheshwari, Partner, Ashok Maheshwary & Associates, a CA firm, said that concluding 50 APAs in a fiscal year is a remarkable achievement. “If the government can bring down safe harbour margins to realistic levels in line with ground realities, then some companies may not need APAs,” he said.