The Central Board of Direct Taxes (CBDT) has signed two more advance pricing agreements (APAs) in September 2017 with Indian taxpayers in order to reduce litigation by providing certainty in transfer pricing.
The two signed APAs pertain to automobile and healthcare consulting sectors. They include provision of IT enabled services (ITES), provision of software development services and provision of engineering design services.
With this, total number of APAs entered into by CBDT till date has reached 177. This includes 164 unilateral APAs and 13 bilateral APAs. So far, in current financial year, total of 25 APAs (2 bilateral and 23 unilateral) were signed.
Advance Pricing Agreements (APAs)
CBDT’s APA scheme aims to provide certainty to taxpayers in domain of transfer pricing by specifying methods of pricing and setting prices of international transactions in advance. It helps in determining arm’s length price of international transactions in advance for maximum period of five future years.
The APA provisions were introduced in Income Tax Act in 2012 and `rollback` provision to pull out of it was introduced in 2014. Its objective is to strengthen government`s resolve of fostering non-adversarial tax regime. Under Bilateral APA, certainty in tax treatment is provided for next 5 years while rollback provides dispute redressal for maximum of four past years preceding APA years.