‘Advance Pricing Agreement’ programme bolstered tax certainty: KPMG Survey

The Advance Pricing Agreement (APA) programme , which was launched in 2012, seems to have contributed significantly towards achieving tax certainty, a survey report by KPMG in India has said.

Coming as it does at the end of five years of APA programme, KPMG in India’s 2017 APA Survey said that the APA regime in India has ushered in a new era of greater certainty for taxpayers and has so far received an overwhelming response from the taxpayers.

With 815 applications filed and 152 APAs signed till 31 March 2017, the programme has seen constant evolution and success albeit in a short period of time.

The KPMG Survey looked back at the last five years of the programme in terms of its process, implementation, performance, administration, outcomes and the future outlook.

While the taxpayers’ applaud the rational and pragmatic approach of the Indian APA authorities, they expect a faster resolution rate, stronger administration and clarity around certain complex issues related to APAs.

Unlike other economies such as the US, the UK etc. where similar programmes may have commenced in a progressive manner while achieving greater maturity every year, India’s APA programme started with a big-bang which explains the reason that despite a better disposal rate in India vis-à-vis what most countries have achieved, the applicants expect even faster resolution.

While many taxpayers are of the view that the historical TP audits and the Safe Harbours do impact the outcome of APA, the response from the tax department seems to allay that fear as the prior years’ TP outcomes and Safe Harbours are considered of least importance by the CBDT.

The importance of historical orders of Tribunal/ High Court, MAP outcomes and bilateral APAs entered into by the counter country has been underscored by the CBDT as well as by the taxpayers.

The survey has indicated that many taxpayers, while finalising their APA terms, did not get clarity on certain pertinent issues including the impact of APA on tax holiday benefits and MAT computation. CBDT can perhaps consider providing guidelines on such issues by way of public circulars.

The CBDT has highlighted the need for the applicants to respond to APA authorities on time and ought to be more transparent and collaborative in sharing relevant information pertaining to their multinational group.

The CBDT has also highlighted the issue of an overwhelmingly large number of new applications being filed in the month of March every year which creates administrative challenges and has urged taxpayers to file applications throughout a year instead of pushing them to the end of the year.

Of the 152 APAs that have been signed till March 31, 2017, 141 are unilateral APAs and 11 are bilateral APAs. The survey has shown preference for unilateral APAs amongst the taxpayers due to lesser time and resource requirement.

When asked which type of APA programme they would recommend to other companies given their experience, the respondents again favoured significantly towards Unilateral APA.