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Advance Pricing Agreements (APAs)

Topics Covered:

  1. Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

 

Advance Pricing Agreements (APAs)

 

What to study?

For Prelims and Mains: APAs- meaning, features and significance.

 

Context: CBDT inks the 300th Advance Pricing Agreement.

APA Programme is currently in its seventh year.

 

What are APAs?

An APA is an agreement between a taxpayer and the tax authority determining the Transfer Pricing methodology for pricing the tax payer’s international transactions for future years.

Purpose: An APA provides certainty with respect to the tax outcome of the tax payer’s international transactions.

 

Statutory basis:

The Finance Act, 2012, inserted sections 92CC and 92 CD in the ITA to provide the legal basis for APA in India.

 

An APA can be one of the three types – unilateral, bilateral and multilateral:

  1. Unilateral APA is an APA that involves only the taxpayer and the tax authority of the country where the taxpayer is located.
  2. Bilateral APA (BAPA) is an APA that involves the tax payer, associated enterprise (AE) of the taxpayer in the foreign country, tax authority of the country where the taxpayer is located and the foreign tax authority.
  3. Multilateral APA (MAPA) is an APA that involves the taxpayer, two or more AEs of the tax payer in different foreign countries, tax authority of the country where the taxpayer is located and the tax authorities of AEs.

 

Significance:

The progress of the APA scheme strengthens the government’s resolve of fostering a non-adversarial tax regime. The Indian APA programme has been appreciated nationally and internationally for being able to address complex transfer pricing issues in a fair and transparent manner.

 

Sources: pib.

 

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