Since 1991 International transactions are at high due to liberalization and Globalization in India.
Transfer pricing is used in case of an International Transactions or domestic transactions between interrelated or associate parties. Transfer pricing provisions help to check revenue erosion from the country by various persons mainly corporates having holding - subsidiaries, joint ventures, associates etc.
An advance pricing agreement (APA) is an ahead-of-time agreement between a taxpayer and a tax authority on an appropriate transfer pricing methodology (TPM) for a set of transactions at issue over a fixed period of time.
The international transactions are very complex in nature. The main objective of the APA is to bring tax certainty in international transactions and overcome the issues due to transfer pricing between related parties like a holding, a subsidiary or an associate company of another party.
Main Condition for Applicability of Arm's Length Price;
i. There should be two or more enterprises and they are associate enterprises, provisions of Section 92F(iii) defines an Enterprise;
ii. Enterprises should be regarded as Associate Enterprises, provisions of Section 92A (1) defined Associate Enterprises;
iii. International transaction should be carried out by the Associate Enterprise
Advance Pricing Agreement as per Income Tax Act:
(1) The Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person, determining the arm's length price or specifying the manner in which arm's length price is to be determined, in relation to an international transaction to be entered into by that person.
(2) The manner of determination of arm's length price referred to in sub-section (1), may include the methods referred to in sub-section (1) of section 92C or any other method, with such adjustments or variations, as may be necessary or expedient so to do.
(3) Notwithstanding anything contained in section 92C or section 92CA, the arm's length price of any international transaction, in respect of which the advance pricing agreement has been entered into, shall be determined in accordance with the advance pricing agreement so entered.
(4) The agreement referred to in sub-section (1) shall be valid for such period not exceeding five consecutive previous years as may be specified in the agreement.
(5) The advance pricing agreement entered into shall be binding-
(a) on the person in whose case, and in respect of the transaction in relation to which, the agreement has been entered into; and
(b) on the [Principal Commissioner or] Commissioner, and the income-tax authorities subordinate to him, in respect of the said person and the said transaction.
(6) The agreement referred to in sub-section (1) shall not be binding if there is a change in law or facts having bearing on the agreement so entered.
(7) The Board may, with the approval of the Central Government, by an order, declare an agreement to be void ab initio, if it finds that the agreement has been obtained by the person by fraud or misrepresentation of facts.
(8) Upon declaring the agreement void ab initio, -
(a) all the provisions of the Act shall apply to the person as if such agreement had never been entered into; and
(b) notwithstanding anything contained in the Act, for the purpose of computing any period of limitation under this Act, the period beginning with the date of such agreement and ending on the date of order under sub-section (7) shall be excluded:
Provided that where immediately after the exclusion of the aforesaid period, the period of limitation, referred to in any provision of this Act, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly.
(9) The Board may, for the purposes of this section, prescribe a scheme specifying therein the manner, form, procedure and any other matter generally in respect of the advance pricing agreement.
[(9A) The agreement referred to in sub-section (1), may, subject to such conditions, procedure and manner as may be prescribed, provide for determining the arm's length price or specify the manner in which arm's length price shall be determined in relation to the international transaction entered into by the person during any period not exceeding four previous years preceding the first of the previous years referred to in sub-section (4), and the arm's length price of such international transaction shall be determined in accordance with the said agreement.]
(10) Where an application is made by a person for entering into an agreement referred to in sub-section (1), the proceeding shall be deemed to be pending in the case of the person for the purposes of the Act.
CBDT signs 10 more APAs - Advance Pricing Agreements
Central Board of Direct Taxes (CBDT) signs ten (10) more Advance Pricing Agreements (APAs) pertaining to various sectors of the economy like Telecom, Pharmaceutical, Banking & Finance, Steel, Retail and Information Technology etc.; With this, the total number of APAs entered into by the CBDT reaches 140.
The Central Board of Direct Taxes (CBDT) has entered into 10 more Advance Pricing Agreements (APAs) over the last one week, including 7 Unilateral APAs signed today. Two of these ten agreements are Bilateral APAs with the United Kingdom and Japan. Seven of these Agreements have Rollback provisions in them.
With this, the total number of APAs entered into by the CBDT has reached 140. This includes 10 Bilateral APAs and 130 Unilateral APAs. In the current financial year, a total of 76 APAs (7 Bilateral APAs and 61 Unilateral APAs) have already been entered into. The CBDT expects more APAs to be concluded and signed before the end of the current fiscal.
The APAs entered into over the last week pertain to various sectors of the economy like Telecom, Pharmaceutical, Banking & Finance, Steel, Retail, Information Technology, etc. The international transactions covered in these agreements include Payment of Royalty Fee, Trading in Goods, IT Enabled Services, Software Development Services, Marketing Support Services, Clinical Research Services, Non-binding Investment Advisory Services, Payment of Interest on ECB, etc.
The APA Scheme was introduced in the Income-tax Act in 2012 and the "Rollback" provisions were introduced in 2014. The scheme endeavors to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and setting the prices of international transactions in advance. Since its inception, the APA scheme has evinced a lot of interest from taxpayers and that has resulted in more than 700 applications (both unilateral and bilateral) being filed so far in about five years.
The progress of the APA Scheme strengthens the Government's resolve to foster 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.
Tags :Income Tax