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CBDT signed first APAs with ‘Rollback’ provision

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    With an aim to boost the Indian economy and also to avoid disputes in taxation and provide transparency, the Central Board of Direct Taxes (CBDT) for the first time has entered into an Advance Pricing Agreements (APAs) with ‘Rollback’ provision with two US Multi-National Companies (MNCs).

       The rollback deal was signed with one of the US firms for nine years, which includes protection against litigation for the past four years as well. As per the existing law, companies could enter into an agreement with tax authorities for the next five years but the roll-back norms give protection for the previous four years as well – a total of nine years. In India, the rollback provisions came into effect recently, last October. In case of bilateral APAs, the foreign related party and the tax authorities of the foreign country are also involved.

 What is APA?

     APA is an ahead-of-time agreement between a taxpayer and a taxing authority on an appropriate transfer-pricing methodology for some set of transactions over a fixed period of time.

 Initiatives

    A Framework Agreement was recently signed with United States under the Mutual Agreement Procedure (MAP) provision of the India-US Double Taxation Avoidance Convention (DTAC). This will open the door for signing of bilateral APA with the US. Apart from US countries like Japan and UK are also progressing well in case of MAP.

 Impacts:

  • These initiatives will provide stable tax environment to foreign investors doing business in India and will reduce compliance and make tax regime investor-friendly.
  • This will certainly fulfill the target of boosting the economy.