Process of filing for Advance Pricing Agreements

Indian authorities have introduced unilateral, bilateral and multilateral APAs with effect from 1 July 2012. There are no monetary or other conditions prescribed under the Indian APA rules for a taxpayer to be eligible for applying for an APA. However, the APA mechanism is not available for specified domestic transactions. The validity of an APA (once entered into) shall not exceed five consecutive years and shall be binding on the taxpayer as well as the Revenue authorities in respect of the international transactions for which the APA is sought. APA fees would range between INR 1 million to 2 million, based on the value of international transactions. There are four phases in an APA which is in line with global practice, as follows:

Pre-filing phase: The process of an APA would start with a pre-filing consultation meeting. This meeting will be held to determine the scope of the agreement, understand the transfer pricing issues involved and to determine the suitability of the international transaction for the agreement. No fee is to be paid in this phase.

Formal submission phase: After the pre-filing meeting, if the taxpayer is desirous of applying for an APA, an application in the prescribed format would be required to be made containing specified information. The APA filing fee is payable at this stage. In the application, the taxpayer must describe critical assumptions. Critical assumptions refer to a set of taxpayer related facts and macroeconomic criteria (such as industry, business, economic conditions, etc.), the continued existence of which are material to support the position concluded under an APA. A material change in any of the critical assumptions may result in the revision of the APA or even termination in extreme circumstances.

Negotiation phase: Once the application is accepted, the APA team shall hold meetings with the applicant and undertake necessary inquiries relating to the case. Post the discussion and inquiries, the APA team shall prepare a draft report which shall be provided to the Competent Authority in India (for unilateral/multilateral APA) or the Director-General of Income Tax (International Tax and Transfer Pricing) (for Unilateral APA).

Finalization phase: This phase involves the exchange of comments on draft APA, finalization of the APA, and giving effect to the initial years covered under the APA term that has already elapsed.

The taxpayer will be required, as part of the APA, to prepare an annual compliance report (ACR) for each year of the APA, containing sufficient information to detail the actual result for the year and to demonstrate compliance with the terms of the APA. The ACR shall be furnished within thirty days of the due date of filing income tax return for that year, or within ninety days of entering into an agreement, whichever is later.