Advance Pricing Agreements Current Affairs

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CBDT signs four unilateral Advance Pricing Agreements  

The Central Board of Direct Taxes (CBDT) under the Department of Revenue, Union Ministry of Finance has entered into four more unilateral Advance Pricing Agreements (APAs).

These four APAs are related to Manufacturing, Financial and Information Technology sectors. They cover international transactions such as Contract Manufacturing, Software Development Services and IT Enabled Services.

With this, the total number of APAs entered into by the CBDT has reached 130. It includes 122 Unilateral APAs and 8 bilateral APAs. In the current financial year (2016-17), total 66 APAs (5 bilateral APAs and 61 unilateral APAs) were signed.

About Advance Pricing Agreements (APAs)

The APA Scheme was introduced in the Income-tax (IT) Act in to provide certainty to taxpayers in domain of transfer pricing by specifying methods of pricing and determining prices of international transactions in advance. The Rollback provisions under this scheme were introduced in 2014. The scheme seeks to foster government’s aim of non-adversarial tax regime.

Benefits: (i) Boost to economy and ease of doing business.  (ii) Strengthen Government’s mission of fostering a non-adversarial tax regime. (iii) Introduces certainty in tax law by reducing compliance costs and make tax regime investment friendly. (iv) Provides certainty to taxpayers regarding transfer pricing to avoid disputes between taxpayer and tax regulator.

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India and UK sign three Bilateral Advance Pricing Agreements  

The Central Board of Direct Taxes (CBDT) signed three Bilateral Advance Pricing Agreements (APAs) with the Competent Authority of United Kingdom (UK) to reduce tax litigation.

Earlier both countries had exchanged mutual agreements amongst them under the Mutual Agreement Procedure (MAP) Article of the India-UK Double Taxation Avoidance Convention (DTAC). With this, CBDT so far has entered into 111 APAs.

These three APAs cover international transactions in the nature of payment of intra-group service charges and pertain to the telecom industry. They also have a roll-back provision.

What is Advance Pricing Agreement (APA) Programme?

  • The APA Programme was introduced by Finance Act, 2012 with a view to provide a predictable and non-adversarial tax regime and to reduce litigation in Indian transfer pricing arena. Rollback of APAs was announced in the Budget in July 2014.
  • An APA is usually signed between taxpayer and central tax authority on an appropriating transfer pricing methodology for determining the value of assets and taxes on intra-group overseas transactions. An APA can be entered into for a maximum of 5 years at a time.
  • It seeks to introduce certainty in tax law by reducing compliance costs and make tax regime investment friendly.
  • It provides certainty to taxpayers regarding transfer pricing that aim to avoid disputes between taxpayer and tax regulator.

What are benefits of APAs?

  • Boost to economy and ease of doing business.
  • Provide alternative path to the investors with rollback provision to reduce litigation
  • Strengthen Government’s mission of fostering a non-adversarial tax regime.

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CBDT inks 7 Advance Pricing Agreements to cut tax litigation

The Central Board of Direct Taxes (CBDT) has signed seven unilateral Advance Pricing Agreements (APAs) with Indian taxpayers to reduce tax litigation.

With this, CBDT has so far entered into 77 APAs. This includes three bilateral APAs and 74 unilateral APAs.

These 7 APAs signed pertain to various sectors like banking, information technology and automotives. Some of these APAs have rollback provisions.

What is Advance Pricing Agreements (APAs)?

  • APA usually is signed between a taxpayer and the central tax authority (in case of India it is CBDT) on an appropriating transfer pricing methodology for determining the value of assets and taxes on intra-group overseas transactions.
  • It seeks to introduce certainty in tax law by reducing compliance costs and make tax regime investment friendly.
  • It provides certainty to taxpayers regarding transfer pricing that aim to avoid disputes between taxpayer and tax regulator.
  • In India, Advance Pricing Agreement mechanism was introduced in 2012 as per the provisions of the Income Tax Act, 1961.
  • In case of Indian context, APAs seeks to give (i) Boost to economy and ease of doing business (ii) Provide alternative path to the investors with rollback provision to reduce litigation (iii) Strengthen Government’s mission of fostering a non-adversarial tax regime.

Transfer pricing: It is referred to the fixing of the price for goods and services sold between related legal subsidiaries (entities) within an enterprise.

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