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The Central Board of Direct Taxes (CBDT) has signed three more unilateral advance pricing agreements (APAs) with companies in India, taking the overall number of APAs to nine.
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 normally covers multiple years and helps avoid any disputes with the taxman over transfer pricing.
Of the nine APAs signed till date, eight are unilateral (with only one company) while one is a bilateral agreement signed with Japan in December last year.
The three unilateral APAs signed on March 31 relate to the contract manufacturing, professional services and support services sectors. The names of the companies involved could not, however, be ascertained.
Amit Maheshwari, Partner, Ashok Maheshwary & Co, a firm of chartered accountants, said that the signing of these three APAs underscores the success of the programme in India as a dispute resolution mechanism.
Better investment climate SP Singh, Senior Director-Transfer Pricing, Deloitte in India, said the APAs show that the government is keen to reduce litigation and improve the environment for investment. The situation will improve substantially if a few more steps are taken at the earliest, he said.
Challenges to overcome The government should analyse the reasons for growing litigation, which is creating problems for taxpayers but not bringing revenue, and take corrective steps, said Singh. The capacity of the APA team must also be enhanced substantially to speed up the process, he added.
With rollbacks introduced, this aspect needs immediate attention, Singh said. A roll-back allows the taxpayer to use the price agreed for the future on past transactions as well, in specific circumstances, up to a maximum of four years.
In effect, a taxpayer thus gets price certainty for nine years — five years in the future and four years in the past.
Double advantage
Using this facility, a company will not only be able to ascertain its tax liability in advance, it will also be able to apply the principle for previous years’ liabilities.
As on date, about 580 applications for APAs are pending before the CBDT.
Dhaivat Anjaria, Partner-Transfer Pricing, Pricewaterhouse & Co LLP, said the signing of the second batch of APAs is a positive move, bringing tax certainty to additional areas such as financial services.
MNCs can view this as a precursor to several APAs expected to be signed across industries during the year, signalling the coming of age of the India APA programme, he said.
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