The tax department inked seven one-sided advance pricing agreements (APAs) with taxpayers in the various sectors of the Indian economy like banking, information technology and automotives in order to minimize judicial proceedings by providing certainty in the domain of transfer pricing.
What is APA?
APA stands for Advance Pricing Agreement. The Advance Pricing Agreement is an arrangement between the taxpayer and the tax authority covering future transactions, with a view to solve the potential transfer pricing disputes in a cooperative manner.
These APA provisions were introduced in India in July 1, 2012 by the Finance Minister in the Union Budget 2012. The Central Board of Direct Taxes (CBDT), by notification in the official gazette, has introduced the detailed rules providing the procedures and necessary forms for application/administration of the APAs.
The APAs may be bilateral or unilateral. When the competent authorities of two countries negotiate in advance to determine the ALP of the future international transaction, it is called bilateral APA.
On the other hand sometimes, taxpayers may like to go for unilateral APA in order to have an agreement only with one government authority to have tax certainty in that country. This is called Unilateral APA.
These 7 pacts which relates to international transactions include
- Software development services,
- IT enabled services (BPOs),
- Engineering design services,
- Administrative and business support services.
These 7 agreements tone up the government’s delegacy of promoting a non-adversarial tax authority. These APAs strive to provide possibility to taxpayers in the sphere of transfer pricing there by specifying the methods of pricing and setting the prices of international transactions well in advance.
It is noted that 74 unilateral and 3 bilateral APAs were signed between authorities and various interested firms. Among these 77, 13 APAs were signed in this current financial year and in the near future, many APAs are expected to be signed by the authority, CBDT.