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CBDT signs two advance pricing pacts with US firms
August, 10th 2015

The Central Board of Direct Taxes (CBDT) has signed two advance pricing agreements (APAs), one of which is a rollback, with US companies to overcome transfer pricing issues.

Besides, the board is negotiating to conclude agreements with companies from Japan, the UK.

APAs settle the methods of setting the prices of international transactions in advance.

One of the agreements signed is the CBDT's first rollback APA that deals with past years of transfer pricing issues as well. While the name of the company with which the rollback APA was signed was being kept under wraps, the regular APA was with the US business process outsourcing company WNS, sources said.

With this, the CBDT has signed 14 APAs, of which 13 are unilateral and one is a bilateral APA. Bilateral APAs involve the government of the country where the company concerned is located. Unilateral APAs are signed by the CBDT with only the company concerned.

The 14 APAs signed relate to various sectors like telecommunication, oil exploration, pharmaceuticals, finance and software services.

An APA with a rollback provision extends tax certainty for nine financial years against five in regular APAs. As such, rollback APAs have agreements with up to five forward years and up to four past years.

"Currently, a number of unilateral as well as bilateral APAs with competent authorities of the UK, Japan among others are at advanced stages of negotiation," the official statement added.

A framework agreement was recently signed with the US under the mutual agreement procedure (MAP) provision of the India-US double taxation avoidance convention (DTAC). Around 200 past transfer pricing disputes between the two countries in software and infotech-enabled services are expected to be resolved by this agreement during the current year. So far, 35 disputes have been resolved and another 100 are likely to be resolved in the next three months.

The framework agreement with the US opens the door for signing of bilateral APAs with the US. MAP programmes with countries like Japan and the UK are also progressing well with regular meetings and resolution of past disputes.

Transfer pricing has been a major cause of dispute between the tax department and multinationals as the two sides do not agree over the margins on which the tax is to be levied.

The issue of transfer pricing at Cairn and Nokia generated much heat in India.

To resolve disputes, the government has been easing rules for multinationals. Earlier, it had decided not to appeal against a Bombay High Court order providing relief to Vodafone over a Rs 3,200 crore tax dispute over transfer of shares to the parent company.

The CBDT had also asked field officials to apply the spirit of the ruling in similar cases.


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