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.